IBM Continues to Consolidate Above Solid Support
IBM (IBM) - Get Report has been trading rather heavy since its early April peak. As March came to a close, the powerful rally off the January/February double bottom had stretched a bit too far. With the stock well into overbought territory and earnings just around the corner, IBM had used up all of its momentum.
Since then, Big Blue has been in a narrow consolidation pattern, and as a new month begins, the stock is holding just above an important support area.
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Just before IBM reported earnings on April 18, the stock was within pennies of its rally highs and was just coming off its highest overbought reading in its moving average convergence/divergence indicator. Based on this robust action, investors were not expecting disappointing earnings news. The stock was vulnerable to a sharp reversal, and that's exactly what took place on April 19. IBM fell over 5.5% that day on its heaviest downside trade in months. Further downside seemed to be a lock, but the stock held in extremely well considering the major damage from the opening breakdown gap.
The sideways action that followed IBM's April 19 breakdown has allowed the stock to work off nearly all of its overbought reading without giving back much ground. IBM still remains above the low that day as it continues to repair the damage. Patient IBM investors should consider this process encouraging as long as the stock holds above the $140 area. Just above this level is a key support zone that includes the stock's December peak, April low and 200-day moving average. This area runs from $142.60 to $141.40. IBM bulls should consider this area for purchases in the near term.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
