Shares of International Business Machines, or IBM (IBM:xnys), have traded weakly for the most part in 2015, particularly after an overshooting rally into late spring. While other "old tech" stocks, such as Microsoft and Intel, have enjoyed healthy gains in recent weeks, IBM has seen none of that, and in fact has traded lower, reaching fresh multi-year lows last week.
The IBM selloff increasingly looks to be overdone, however, and active and strategic investors may find this an opportune time to build up some long positions in the stock.
The long-term chart shows that IBM has traded weakly since spring 2013 and that the most recent weakness has finally pushed the stock into a more supportive spot, from a technical perspective.
Namely, IBM stock is currently around the 50% retracement area of the entire rally off the 2009 lows into the 2013 highs. The stock is also nearing its 2010 breakout line (black horizontal), which, after acting as resistance for years, may offer support.
IBM approaches 2010 breakout line, which could provide support
The daily chart shows that IBM marginally violated the lower end of its multi-month range last week, while momentum continues to make higher lows. The confluence of the bigger-picture support area (on the longer-term chart above) and the near-term bullish divergence between price and momentum looks promising to initiate a long position in the stock.
IBM daily chart shows near-term bullish divergence between price and momentum
Management and risk description
Medium to longer-term investors could look to pick up IBM stock around current levels. An alternative would be to sell out-of-the-money puts, which, if exercised, position investors long in the stock, allowing them to buy the stock at a lower price and keep the premium they initially got for selling the puts.
Entry: Buy the CFD or stock around the $140 mark
Time horizon: into year-end 2015, possibly into early 2016
— Edited by John Acher
Non-independent investment research disclaimer applies. Read more