IBM (IBM - Get Report) will begin Tuesday's session with a steep downside gap following Monday night's disappointing third-quarter earnings report. Shares are off more than 4.5% in the aftermarket as investors once again show their frustration with the tech giant.
IBM is likely headed for a retest of major support near the $140 area as this breakdown plays out. IBM bulls should feel very fortunate if this zone holds under what will be a very aggressive selling wave. A close below $139 could spell disaster for the stock and could usher in a fresh down leg.
Back on Oct. 2, IBM mounted a sharp upside reversal after successfully testing the August spike low. The next day, shares powered through a key overhead trend line that had linked the August and September highs. Upside volume powering this very bullish action reached its heaviest reading in six weeks.
IBM stalled for a bit just below heavy resistance near $15 but managed to push through the next week. Another significant layer of resistance, the March low at $153.40, headed off the rally on Oct. 9.
IBM has been drifting lower since then. Heading into Monday night's report, it had fallen back below the $150 area. Not doubt investors had lost confidence in the action as earnings neared. The flush now underway has completely wiped out the healthy rally move that began earlier this month. The aftermath could continue to be ugly.
Through the end of this week, IBM bulls should keep a close eye on the $140 area. This major support zone held in well during the August panic flush and did so again during the late-September retest. If investors show little to no interest as this area comes back into play, a much deeper sell could quickly develop. Those committed to a more bullish stance on Big Blue should view $140 as a low-risk buy zone while maintaining a fairly tight stop.