may be the leader in the business services industry, but its
stock is vulnerable to a large decline.
The shares have stabilized after a 12% decline dropped them to
$185 from $210. Though IBM has risen back above $193 during the
past month, the shares will have a tough test in the days ahead.
The $196 area could be the highpoint in this latest recovery, and
the shares could be days away from starting another leg down. Not
only has this zone proven to be an area of selling pressure in
the past, the 50-day moving average (orange) has curled down to
this level to add another layer of potential resistance.
This chart shows the price of
shares along with an important moving average to
The 50-day moving average is somewhat of a double-edged sword.
It's acted as a rally stopper and rally starter - something
already noted in a
previous ChartWatch report
IBM has the chance to take back the 50-day moving average and
begin a new upward trend. Also, the shares are still cheap,
trading at 12 times EPS, which could attract some large
investors. So there is reason to be hopeful that the stock can
However, I suspect this won't be the case. The chart shows that
during the past year the 50-day moving average has supported the
trend (be it bull or bear) at the first opportunity following the
breakout or breakdown from the 50-day moving average.
Sometimes it took months, other times weeks. Yet in the previous
four backtests (blue arrows), the 50-day has supported the trend
each time, sending IBM toward a new rally high or low.
I expect the same will occur this December as the stock moves
toward the $196 zone. Since the trend is bearish, I'm looking for
sellers to reject the latest rally and take the stock below $185.
In this line of work I'm constantly reminded that there's a first
time for everything, although I'm not betting on it this time
Equities mentioned in this article: IBM
Positions held in companies mentioned above: