IBM Could Ride Blockchain Craze to New Highs

Dow component International Business Machines Corporation (IBM) could emerge as the financial market's blockchain darling in 2018, lifting the stock well above $200 to all-time highs. The company has already captured the industry's top slot according to a survey of IT professionals, but starry-eyed traders have chosen to ignore the achievement, instead throwing speculative capital at beaten-down micro caps transformed overnight into quasi-blockchain investors.

Shares of Big Blue gained less than 6% in the fourth quarter of 2017 despite its blockchain growth, grinding through a basing pattern in the lower half of a brutal five-year trading range. However, the stock has flown out of the gate in 2018, hitting a nine-month high while surpassing the prior quarter's performance in just two weeks. This bullish action bodes well for this week's earnings confessional, which could ignite a euphoric burst into the $170s, especially if the 106-year-old technology giant outlines initiatives to further capitalize on its powerful positioning. (See also: IBM Plans Its Blockchain Dominance.)

IBM Long-Term Chart (1993 – 2018)

The stock fell to 27-year support near $9.50 in the third quarter of 1993 and bounced strongly, ending a seven-year downtrend. It broke out above the prior decade's peak in 1997, posting gains in excess of 300% before topping out at $138.35 in July 1999. A narrow trading range into the new millennium generated two failed breakout attempts, followed by a major decline that ended at a four-year low in the mid-$50s in October 2002. 

A bounce into mid-decade stalled at the midpoint of the prior downtrend in 2004, while a 2007 breakout ended within eight points of the 1999 high just one year later. That marked the top, ahead of a vertical plunge that posted a higher long-term low in November 2008. The stock recovered quickly into the new decade, completing a round trip into the 2008 high and breaking out in 2011.

Momentum stalled above $200 in 2012, generating a two-year top, followed by a 2014 breakdown that dumped the stock to a six-year low in early 2016. A bounce into February 2017 ended at the .618 Fibonacci sell-off retracement level in the low-$180s, giving way to a year of mixed action that has ignored the roaring bull market. Meanwhile, monthly stochastics ended a six-month sell cycle in August, while the bounce into January has lifted the indicator just above the panel midpoint, suggesting that bulls will retain control into the second quarter. (For more, see: Why IBM Will Go On Forever.)

IBM Short-Term Chart (2015 – 2018)

A Fibonacci grid stretched across the decline into 2016 organizes price action (red lines), highlighting tough resistance just above $180. The run-up into early 2017 filled a huge 2014 gap at that level, absorbing supply while raising the odds that the stock will eventually break out above that barrier. Mixed sentiment should improve rapidly once that happens, lifting the stock quickly above $200 and into a test of the bull market high at $215.90.

On-balance volume (OBV) entered a multi-year distribution wave in 2012, finally hitting bottom in the first quarter of 2016. Accumulation since that time has failed to match price action, signaling deep investor and institutional mistrust. Conversely, this could signal an opportunity for bottom fishers and value-oriented players willing to buy and hold for several years at a minimum.

Traders should watch price action around the April 2017 gap after earnings, with a buying spike above $170 clearing that barrier while generating the momentum needed for a rally into resistance at $180. Meanwhile, a sell-the-news reaction could bring January's unfilled gap between $154 and $156 into play while also testing 50- and 200-day exponential moving average (EMA) support. In turn, that price zone should generate a low-risk buying opportunity for long-term positions. (See also: Blockchain Is IBM’s to Lose: Juniper Research.)

The Bottom Line

IBM could offer an outstanding opportunity for blockchain buyers wanting to escape the industry's high volatility and growing roster of shady dealers. (For additional reading, check out: IBM Up on RBC Upgrade, Called 'Very Attractive'.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

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