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Mar 28

Long IBM – ‘Big Blue’ Flashes Green

It’s interesting that after many buy signals in defensive sectors like Healthcare, Consumer Goods, and Staples, we now have $IBM, one of the biggest of blue-chip names, giving us what I believe to be a low-risk entry to a strong long-term uptrend. A quick look at the last two years on a weekly chart shows you how the previous two peaks of 2012 have been surpassed in the last few weeks, with those previous highs now being tested as support as the broader market contemplates its next move.

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The last four months on a daily chart (below) show in more detail the recent advance and sequence of successive higher lows. What I particularly like about this chart is the numerous levels of support potentially underpinning this move. We’re currently sitting above the 2012 highs and the 20-day, we then have the post-earnings levels of January and February, currently coinciding with the 50-day, and then finally the previous swing low which closed the post-earnings gap, which also currently houses the 200-day. Three separate levels which all carry their own price significance and also coincide with a moving average, and all within just 7% of Wednesday’s close.

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To me that all makes for a low-risk entry, knowing we can very quickly and easily gauge any deterioration in price, and have an initial invalidation point, below $196, that would have required several other levels to have been broken thereby giving us an early warning a potential change in trend is underway.

With many commentators highlighting the bearish divergence of major indices at all time highs, it’s encouraging to see in the next chart there was no bearish divergence for $IBM, with both Momentum and MACD confirming the move by making a new high with price. Interestingly, when looking at the final chart, a 30min of the last 2 weeks, we can see that while price made a marginal new low this week, both Momentum and MACD have been trending higher suggesting that this current area of support may result in a resumption of the uptrend.

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2 comments

  1. Hunt Cain

    I couldn’t agree more with your S/R on the weekly basis. What kind of stop would you employ here? The 20MA is around 211 and the 2yr weekly is roughly the same. At current prices there does not seem to be a lot of wiggle room.

    Trade Well,
    HC

    1. Jon Boorman

      Thank you, a clean break and close below $196 on a daily basis would invalidate our entry rationale. That’s still reasonably close price-wise, but is arguably generous given the levels of MA support above that.

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