IBM Is at a Year-to-Date High, but What Do the Charts Say?

IBM  (IBM) still remains in bear market territory after its all-time high of $215.90, set on Feb. 15, 2013. But in 2016, IBM is a turnaround success story. 

"Big Blue" is 35% above its February 2016 low of $116.90. IBM still makes mainframe computers, but the tech giant is growing its businesses in information technology in the cloud and data analytics with Watson.

This transition has been helped by its solid year-to-date gain.

IBM is one of eight "Dogs of the Dow." And it is one of the largest holdings in Warren Buffet's Berkshire Hathaway (BRK.A) (BRK.B) .

IBM has a solid dividend yield of 3.63%. And though the average stock in the Dow Jones Industrial Average (INDU) has a price-to-earnings ratio of 19.5, IBM's P/E is 12. That means the stock's price is comparatively low.

The daily chart below shows how to trade IBM based upon the Fibonacci retracement levels of the 45.9% decline from the all-time high set in March 2013 to the February 2016 low.

The weekly chart shows that IBM is poised to end this week with a positive profile. If that is sustained next week, a favorable reaction to earnings is likely. Analysts expect IBM to earn $2.87 a share when it reports after the closing bell on July 18. 

Here's the daily chart for IBM.

 

Courtesy of MetaStock Xenith

IBM closed Wednesday at $158.02, up 14.8% year to date. It is in bear market territory, 26.8% below its all-time intraday high of $215.90, set on Feb. 15, 2013.

The horizontal lines are the Fibonacci retracement levels from the 45.9% decline from the 2013 high to the Feb. 11 low. The stock is 35.2% above that low.

As the chart shows, IBM staged a strong rally off its Feb. 11 low, reaching its 23.6% retracement of $140.25 on March 7. But it did not reach its 38.2% retracement of $154.71 until June 23. After dipping to $142.50 on June 27, the stock set its 2016 high of $158.34 on July 13 -- well above the 38.2% retracement.

The 2016 rise of IBM was interrupted by a negative reaction to earnings on April 18. After a close of $152.53 on April 18, the stock gapped lower with an open of $146.95 on April 19. But weakness held its 200-day simple moving average, then at $143.26. On the rebound, the stock filled the gap to the April 18 low of $151.49.

The key level to hold on weakness is thus the 38.2% retracement of $154.71, and the upside potential is to the 50% retracement of $166.40.

Here's the weekly chart for IBM.

Courtesy of MetaStock Xenith

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.

The weekly chart for IBM is positive, with the stock above its key weekly moving average of $152.27, and well below the 200-week simple moving average of $173.74. The weekly momentum reading is projected to rise to 77.12 this week, up from 71.35 on July 8.

Investors looking to buy IBM should consider doing so on weakness to $146.04 and $141.26, which are key levels on technical charts until the end of July and the end of 2016, respectively.

Investors looking to reduce holdings should consider selling strength to $194.23, which is a key level on technical charts until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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