International Business Machines Corporation (IBM) reports first quarter 2020 earnings after Monday's closing bell, with Wall Street analysts expecting $1.80 earnings per share (EPS) of $1.80 on revenue of $17.6 billion. The stock rallied 3.4% after January's fourth quarter 2019 release, ahead of continued upside that topped out at a two-year high near $160 in February. It then plunged more than 42% into mid-March, posting the lowest low since March 2009.
The old-school tech giant missed out on the bull market, topping out in 2012 and entering a persistent downtrend that has posted an endless series of lower highs and lower lows. Ominously, it can no longer depend on "the rising seas" to limit losses, increasing risk to long-suffering shareholders. The company is also domiciled near the biggest virus outbreak in the world, imposing structural barriers that could affect business operations for months to come.
IBM Long-Term Chart (1993 – 2020)
A six-year downtrend found support near a 19-year low at the end of 1993, ahead of a steady uptick that broke out to new highs in 1997. Internet mania then took control of the ticker tape, adding to gains into the July 1999 peak at $138. That marked the highest high for the next 10 years, ahead of choppy sideways action that continued into a 2002 breakdown into the mid-$50s, marking the lowest low in the past 17 years.
A mixed recovery through mid-decade carved two buying waves before topping out less than 10 points under the 1999 high in July 2008. The stock held up relatively well during the economic collapse, finding support well above the 2002 low in December. The higher low set the stage for a strong bounce that completed a 100% retracement into the prior high above $130 in the first quarter of 2010.
The stock broke out a few months later and entered the strongest uptrend so far this century, adding about 80 points into March 2013's all-time high at $215.90. It broke down from a 20-month double top pattern in October, triggering a downtrend that remains in force as we grind through the second quarter of 2020. Multi-year lows carved in 2016 and 2018 set off all sorts of bottoming calls, but the stock hasn't posted a higher high in more than seven years.
The monthly stochastic oscillator entered a long-term sell cycle from the overbought zone in May 2019 and still hasn't reached the oversold level nearly 12 months later. This persistence highlights extreme selling pressure in line with the stock's multi-year downtrend. The indicator has now turned lower after a failed buying signal, raising the odds that committed bears will test and potentially break the March low.
The first quarter decline ended at the .786 Fibonacci retracement level of the four-year uptrend, which often marks the lowest low in a long-term downtrend. However, it reached that support level during the first wave of a decline off a two-year high, rather than at the end of several waves of selling pressure. This conflict places the stock firmly between a rock and a hard place, with downside momentum pitted against strong support.
IBM Short-Term Chart (2016 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator failed a breakout in March 2020, dropping to the lowest low since June 2019. OBV has barely budged in the past month despite a bounce that has now recouped nearly 50% of the first quarter decline. The advance has reached resistance at the 50-day exponential moving average (EMA), but continued upside into 200-day EMA resistance at the .618 retracement above $130 is possible before committed sellers reload positions.
The Bottom Line
IBM reports earnings after Monday's closing bell, just one month after the stock hit an 11-year low. A buy-the-news reaction could reach $130 or so before aggressive short sellers retake control of the tape.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.