For many on Wall Street, IBM (NYSE:IBM) is a large-cap tech has-been. But following last week’s earnings beat that view is looking shortsighted both off and on the IBM stock chart. Let me explain.
This past Thursday was a very good day for IBM shareholders. Shares finished the session up 4.55%. More important, Thursday offered strong support for investors looking at the established technology giant with fresh interest on the heels of the company’s Q2 earnings report.
By the numbers IBM delivered non-GAAP earnings of $3.17 per share which topped Street views of $3.06. Sales of $19.16 billion for the period matched consensus estimates while falling 4% year-over-year.
In of itself, the mixed results aren’t going to win over investors. But a closer inspection of IBM’s revenues and it’s just completed acquisition of Red Hat (NYSE:RHT) point to an emerging growth story as an important pivot from computer hardware sales into software and the cloud market which should prove a boon for IBM’s shareholders.
What’s more, if we switch from Big Blue’s business prospects over to the price chart, the view for IBM stock’s longer-term prospects looks very promising as well.
IBM Stock Weekly Chart
As discussed late last month, the past few years have seen IBM stock’s fortunes languish after establishing an all-time-high in 2013. Since then shares have witnessed two major periods of corrective price action. The good news is that, taken together, the price action has formed a very large and constructive-looking double bottom base.
Now and with IBM’s post-earnings reaction breaking above angular resistance and the 62% retracement level into the right side of pattern base, shares are in strong position to continue rallying and eventually break out to new highs.
The other reality is I don’t anticipate IBM stock will completely transform itself. Price momentum similar to Amazon (NASDAQ:AMZN) isn’t a reasonable expectation. But could a rally similar to the run Microsoft (NASDAQ:MSFT) has enjoyed the past couple years emerge? Possibly. But first things first.
The IBM Stock Trade
With shares roughly 4% to 5% above April’s pivot high and angular resistance, IBM stock is in a buyable, non-extended position. But I wouldn’t buy shares just yet. With stochastics overbought on the monthly, as well as weekly and daily time frames, waiting to go long IBM on a very likely pullback towards support is the favored strategy.
For now, I’d put IBM on the buy watch list and monitor shares for profit-taking towards or ideally into the area in between $140 and $144.
Should IBM’s price action cooperate, using the weekly time frame to confirm a fresh higher low candlestick within the right side of base is how I’d buy shares. For risk management, using the newly-formed pivot low as a stop-loss or a blended technical and dollar-based exit below $137 to keep exposure off and on the price chart acceptable-looking makes sense.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions IBM stock or its derivatives or any other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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