Dow component International Business Machines Corp. (IBM) traded sharply lower in the first hour of Wednesday’s session after beating first-quarter EPS estimates but missing expected revenues with a 2.8% year-over-year decline. The old school tech giant reaffirmed fiscal year 2017 guidance, but the in-line forecast failed to stem weak sentiment that’s dropped the stock more than 9-points to a four-month low.

The weak results marked the first time in five quarters they’ve missed expectations, but it still sent a chill through long-term shareholders who held losing positions between 2013 and 2016, when nearly every quarter featured a bearish surprise. Fears of a return to that dark period, when the stock scraped the bottom of the Dow performance list, are likely to linger and weigh on shares in coming months.

IBM Monthly Chart (1993–2017)

IBM

IBM topped out in 1987 and entered a steep downtrend that continued into a 19-year low at $10.09 in August 1993. It then turned higher, underpinned by the PC revolution and emergence of the World Wide Web, gaining ground in a channeled uptrend that continued into the 1999 high at $138.35. Tests at that level in 2000 and 2001 attracted aggressive selling pressure, but the price held horizontal range support in the upper-80s until the second quarter of 2002 when it broke down and fell to a 4-year low in the mid-50s.

The stock underperformed badly during the mid-decade bull market, stuck under broken range support into a 2007 breakout that failed to reach 1999 resistance. It plunged with world markets during the 2008 economic collapse, posting a 6-year low in the upper-60s before the dust settled in November, ahead of a 2009 upturn that carved a 100% round trip into the 2008 high in early 2010.

A 2011 breakout caught fire, triggering a strong advance that stalled above $200 in 2012. Nearly three years of quarterly misses built a triple top that broke support near $180 in 2014, generating a major decline that ended on top of the prior breakout level (blue line) in February 2016. Price action since that time has carved a recovery wave that’s failed to pierce resistance at the broken top. Meanwhile, monthly Stochastics has built a small double top at the overbought level (red circle), warning of a developing sell cycle that could trigger at least six to nine months of relative weakness.

IBM Weekly Chart (2012–2017)

IBM

The 2013 to 2016 downtrend drew the outline of an Elliot 5-wave decline, with a bearish continuation gap right at the 50% level. The recovery wave into 2017 finally filled that gap, with the rally’s peak aligning perfectly at the .618 Fibonacci retracement level and broken topping pattern. The stock turned lower in February after hitting those harmonic barriers and is testing support at the 50- and 200- week EMAs just above $160 following this week’s bearish results.

This marks a critical level, with a breakdown bringing $150 into play. The stock needs to hold that level or risk a decline all the way down to the 200-month EMA, which ended major declines in 2002, 2008 and 2016. On the flip side, recovery rallies now need to penetrate the February high at $182.79 to alleviate the deteriorating technical tone. That doesn’t seem likely, given the market’s reluctance to reward this company’s weak performance so far this decade.

The Bottom Line

IBM has suffered through multiyear hot and cold spells in the last three decades and has underperformed broad benchmarks since the current bull market cycle began in 2009. The recovery wave that started in 2016 may have now run its course with a 62% bounce into major resistance, ahead of a downturn that could spend months testing long-term support between $150 and $165.

<Disclosure: the author held no positions in stocks mentioned above at the time of publication.>

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