Dow component International Business Machines Corporation (IBM) reports second quarter earnings after Wednesday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $3.00 on $19.20 billion in revenues. Big Blue dropped like a rock after missing first quarter revenues in April, triggering a 13% six-week slide, but the stock has recovered the majority of losses into this week's confessional.
The company just completed a $34 billion Red Hat acquisition, allowing it to expand a growing subscription-based software products line. IBM has struggled for years finding new ways to increase its limp growth rate, driven by slowing sales of mainframe servers and traditional software. At the same time, inroads into blockchain and other cutting-edge technologies have failed to generate substantial income.
IBM Long-Term Chart (1994 – 2019)
A multi-year downtrend ended at a 27-year low in 1994, giving way to a strong recovery wave that mounted the 1988 high in the mid-$40s in 1997. It took off for the stars into 1999, topping out at $138, ahead of a broad topping pattern that broke range support in the $80s in 2002. The decline settled quickly at a four-year low in the mid-$50s, setting the stage for a strong bounce that failed at $100 in 2004.
A 2006 uptrend stalled within eight points of the 1999 high in 2008, giving way to a garden variety correction during the economic collapse. This relative strength underpinned the upside into the new decade, lifting the stock above decade-long resistance in 2011. It then posted the strongest gains so far this century, hitting an all-time high at $216 in 2013, ahead of a pullback that accelerated into a full-blown downtrend in 2014.
Buyers returned after the stock posted a seven-year low in 2016, generating an impressive bounce that many folks thought would end the long-term decline. However, buying pressure faded in 2017 when the uptick filled the 2014 gap between $170 and $180, marking a resistance level that hasn't been mounted in the past five years. It broke the 2016 low in 2018, hitting the lowest low since 2009, and has bounced modestly into the third quarter of 2019.
The stock has been testing support at the 2010 breakout (green line) for the past three years and is now trading just four points above that support level. This is a dangerous location because another earnings miss could trigger a final breakdown that establishes new resistance above $140. In turn, that will open the door to $100, after IBM stock bounced within six points of that psychological level in December 2018.
On the flip side, price action since 2013 has carved a descending trendline that has now reached $160, highlighting a major barrier that needs to be mounted to improve the long-term technical outlook. That might not be in the cards in the next few months, with the monthly stochastics oscillator crossing into a sell cycle at the overbought zone in May, predicting at least six to nine months of relative weakness.
IBM Short-Term Chart (2016 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator offers a rare bright spot for long-suffering shareholders, lifting to the highest high since 2014, when the stock was trading near $200. This indicates active bottom fishing, but the stock is also a component in high-tech and blue-chip sector funds that are getting bought aggressively as major benchmarks post all-time highs, so this might not signal enthusiasm for a new IBM uptrend.
The Bottom Line
IBM stock is trading at 2010 levels ahead of this week's second quarter earnings report, with bulls hoping that active 2019 buying pressure will translate into higher prices.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.