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Most times when a company announces that it is buying another company, the company doing the acquiring usually sees its stock price drop, while the company being acquired sees its stock price jump. That wasn’t the case this morning when International Business Machines (NYSE: IBM) announced that it is acquiring health care software provider Truven Health Analytics for $2.6 billion.
Truven is held by private equity firm Veritas Capital Fund Management, so we don’t get to see its stock soar, but IBM – the acquirer – has bucked the trend and has surged in price today. IBM shares were up almost 6% when the daily chart below was snagged.
The surge has had an impact on the daily, weekly and monthly charts as the stock has moved above some trend lines that it had been struggling to breach. First, on the daily chart we see that the stock is now solidly above its 50-day moving average. The stock has had trouble moving and staying above this trend line over the last eight months.
The stock had been moving up with the overall market over the last few days, which kept the stock from entering oversold territory, but the rally over the last four days has brought it close to overbought territory now.
Turning our attention to the weekly chart, we see that the recent rally and today’s surge have lifted the stock above its 13-week moving average. The stock has not closed a week above the 13-week moving average since last July. The oscillators are just now reaching middle levels, so it should be some time before they get anywhere near overbought levels.
Another thing to take note of on the weekly chart is the double-bottom pattern that formed with the lows in January and earlier this month. The blue line is just under $117, and this area should act as strong support should the stock pull back.
On the monthly chart we see that the monthly stochastic readings have recently made a bullish crossover. In the past that has been a good sign for the stock for at least a short-term bounce. In some instances where we have seen a bullish crossover of the stochastic readings, it has been the beginning of a long-term reversal in the trend.
We also see a second layer of support on the monthly chart. The blue line in this instance is in the $110-$111 area, which was the point of former resistance in 1999 and 2008.
Looking at the sentiment toward IBM shares, I was a little surprised at the analyst ratings. Of the 24 analysts covering the stock, five have it rated as a “buy,” 14 have it rated as a “hold” and five have it rated as a “sell.” This reflects a certain amount of pessimism toward the stock, which is rare to see on such a blue chip stock.
I think IBM is a long-term buy at this point. Moving above resistance on the daily and weekly charts – plus seeing the bullish crossover from the monthly stochastic readings and some pessimism toward the stock – are the foundations of this bullish stance. I also like the fact that there are two different areas of support that should keep the stock from plummeting.
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