Dow component International Business Machines Corporation (IBM) has dropped 13 points in the past two weeks and is trading near the 2017 low ahead of Tuesday's post-market earnings release. A long string of uninspiring quarterly reports has drained shareholder enthusiasm since the 2013 top, setting a low bar for this week's confessional. Even so, the stock is running out of time to attract committed buyers, raising the odds that it will eventually break down and enter a bear market.
The company has emerged as a world blockchain leader, but that impressive designation has failed to lift the stock out of its long-term slumber. IBM makes plenty of money, but growth has been elusive, with the July report barely meeting modest expectations. Look for market players to focus on cloud performance and margin pressure to gauge their forward trajectory while discounting hardware revenues that have stagnated in recent years.
IBM Long-Term Chart (1993 – 2018)
The company has been publicly traded since 1911, first listed on the New York Stock Exchange as the Computing-Tabulating-Recording Co. It tested the 1974 low at $9.34 in 1993 following a six-year downtrend and bounced 75 cents above that level, entering an uptrend that gathered steam during the internet bubble. The rally ended at $138 in 1999, marking a high that wasn't breached for the next 11 years.
A three-year rectangle pattern broke support in the $80s in 2002, yielding a steep slide that ended at $54.01 in October, marking a low that hasn't been tested in the past 16 years. A two-legged uptick stalled seven points under the 1999 high in 2008, giving way to a pullback that accelerated during the economic collapse. It settled at 2005 support near $70 in November and turned higher once again, completing a V-shaped pattern into the prior high at the turn of the decade.
An October 2010 breakout caught fire, posting prolific gains before topping out at an all-time high above $210 in 2013. Bears then took control once again, carving a multi-year decline that nearly cut the stock price in half into February 2016's low at $116.90. A bounce into March 2017 stalled in the $180s, posting the second lower high since 2013, ahead of renewed selling pressure that ended near $140 in September. That support level has now been in play for the past 13 months.
IBM Short-Term Chart (2016 – 2018)
A 12-point October 2014 gap between $170 and $182 got filled in 2017, with that price zone also ending the multi-month bounce. This ceiling now marks major resistance, as evidenced by January 2018's failed rally into $171. The stock has drawn a descending triangle pattern since that time, with support in the upper $130s signifying the last line of defense for the intermediate uptrend that started in 2016. Expect a breakdown to generate a rapid decline into the 2016 low while raising the odds that the stock will eventually fall into the double digits.
The on-balance volume (OBV) accumulation-distribution indicator offers a ray of hope to beaten-down shareholders, bottoming out in 2016 and entering a modest accumulation phase that hit a four-year high in September 2018. However, this unexpected loyalty comes with an expiration date that is likely to trigger a rapid exodus if the company fails to book the ambitious cloud revenues forecast in its strategic initiatives.
The Bottom Line
IBM heads into third quarter earnings after completing a bearish descending triangle pattern with horizontal support near $140. A breakdown could be deadly, generating a rapid decline, while a euphoric relief rally would run into a buzzsaw of resistance above $170.
<Disclaimer: The author held shares of IBM in a family account at the time of publication.>