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Scrolling through my nightly scans from Tuesday, one stock that jumped out at me from the bearish scan was International Business Machines (NYSE: IBM). The stock is closing in on overbought levels from the daily oscillators and it faces resistance at the $175 level.
Back in October, IBM stock hit the $175 level and found support there until it gapped lower after a disappointing earnings report. We often see former support levels act as resistance when a stock tries to climb back up. The stock has climbed back up to the $175 level after falling as low as $147.50. While the momentum seems to be to the upside, the overbought level and the resistance makes me think the stock will roll lower over the next few weeks.
Looking at the weekly chart we can see that over the last three years, October 2014 wasn’t the only time the $175 level came into play as support. The same area acted as support late in 2012 and again last summer. We can also see that the weekly slow stochastic readings are the highest they have been since March 2013, and the 10-week RSI is the highest it has been since then as well.
It looks like the stock wants to roll lower, and the first layer of support would be in the $165 level. This area served as support in late 2013 before the gap lower last fall. Should the stock break through that support, it could move all the way back down below the $150 level.
The only thing I see that could keep IBM from falling is the sentiment toward the stock. The current short interest ratio is 6.8, which is pretty high for a blue chip stock like IBM. The ratio has come down a little in recent months, but remains skewed toward the bearish side. Analysts are also pretty bearish on the stock, as 16 out of the 23 analysts following the stock have it rated as a “hold” and another four have it rated as a “sell.” That leaves only three analysts rating IBM stock as a “buy.”
IBM’s sales have been falling recently, and they are expected to drop 14.2% during the current quarter and another 10.9% next quarter. Sales for the year are expected to decline by 10%.
Given the negative fundamentals and the iffy looking chart, these two styles of analysis outweigh the sentiment analysis, which from a contrarian viewpoint is bullish. Preferably you want to see all three analysis styles line up on the same side, but in this case I will take two out of three.
I see IBM stock falling over the summer, but I would watch the $165 level closely to see if it holds as support. If that support holds, we could see the stock bounce back to the $175 level and it could get caught in a range. I like the idea of selling the stock short with a target of $150, but keep a close eye on $165.
First Apple, now this…
On Friday, April 24th, the Apple Watch finally became available. And if history is any guide, it’s going to catapult Apple even higher—as did the iPod, iPhone and iPad before it. Now, Apple would prefer you didn’t know this…but there’s another company that’s destined to soar even higher because of the Apple Watch. Apple has long tried to keep it a secret. But you can discover it right here.