International Business Machines Corporation

Long

Boring Stock, Getting Close to a Potential Long-Term Breakout

Updated

Waiting for a monthly close above the 8-year downtrend line to get in. The chart is pretty messy but many other signals are converging around that area (200-month EMA, 50-month EMA, .382 Fib). Price had a false breakout early in the downtrend based on the trendline I drew but I drew it where it is because it had many hits along this line. If price breaks out here I think it's significant because it would also be breaking above the 200-month EMA after dipping below temporarily (which it hadn't done for a really long time). I'm waiting for a monthly close above the 200-month EMA to start a position, and will plan on adding more if it can get about the 50-month EMA. I don't have a stop loss, this is a long-term buy and hold and collect the dividends if it can breakout. If it has a false breakout and goes down, I'll just buy up more at certain intervals and will update this idea. I think from looking at this chart and reading/listening to some of the other ideas about this stock that it can surpass the highs it made about 8 years ago and my price target is $270-$300 where I would start to think about using a stop loss and protecting profit. I like using stop losses eventually because it can let a stock potentially run rather than just selling when it hits the target. Anyway, waiting for another week to make a decision. If price ends up failing here, I think I will probably be able to get in down around $100 or maybe even a bit lower and I would consider starting a position there but I like buying on breakouts rather than trying to catch a "falling knife". One more thing on this stock, it hasn't participated much in the market recovery since the March lows from the covid panic selloff and that makes me like it also (just look at a long-term chart of Microsoft after the tech bubble, for a long time it pretty much traded sideways and now look at it, I'm not saying IBM will do the same but it could, I'm not one to limit the potential of the stock market long-term, over long periods of time it goes up on average).
**These are just notes about what I am personally considering doing and are not recommendations to trade. If you decide to follow any of this, trade at your own risk and keep a long-term perspective, I'm talking this trade could take the better part of a decade to play out (not weeks or months, that would be a short-term trade which is usually not for me).**

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At the same time, all those indicators I mentioned could provide massive resistance, which is why I'm waiting for a monthly close breakout, and I should probably wait for a monthly close above the 50-month EMA for a better signal.

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As of right now it's breaking out but there are a few more days left in the month so I'll wait until Wed. next week to make a decision.

Thought I should mention, I like to include RSI and Market Cap in my charts. RSI helps me see if a stock is over or undervalued, just in general. Market cap helps me avoid companies that are being diluted by more shares being offered.

RSI is currently right in the middle on the long-term chart but in this case I'm not considering RSI on whether or not to make a move. I'm trading on an 8-year downtrend potentially being broken and also potentially breaking above some other significant indicators. If a long-term bull run starts, you can see in the past with this stock that RSI can hover near the top of the range while price charges higher (see the run it made from the mid '90s until the tech bubble burst in early '00s). Another interesting observation with RSI that may help in the future is when it touches 80 on a monthly closing basis, in the past that has signaled that the top is close to being put in.

As far as market cap goes, you can see this stock isn't being diluted. I like including that because I can quickly see if that's happening or not. Sometimes the data looks weird on that indicator and doesn't make sense but helps me avoid companies that are going to dilute my shares.

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Here is an updated chart with my original trendline and a new one that doesn't "cut off the head" in early 2017 - adjusted it per comment below, thanks. I think I'll wait until price can make a monthly close above that trendline to get in to be safe, although it doesn't line up with all the other indicators I mentioned initially. Maybe I'll start a position if price can make a monthly close above the 50-month EMA and then add if it can make a monthly close above the updated trendline. I have also decided to use a stop loss to limit downside risk, it'll probably be a monthly close either back below the 200-month EMA or below the opening price of this month's strong green candle.

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Here is one more chart, added regression trend from the monthly close top it made in March 2013 to where price is currently at. I like the regression trend because it also lines up with the new trendline and if price fails here, gives me a better idea when it's a good time to buy.

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You can see more clearly if it fails here then it's likely to breakdown to about $90 or maybe even $80 depending on how long that takes to get to the bottom of the regression trend channel. I'm not sure if this one is bad that it "cut off the head" to the downside but I guess you'd look at that as just an anomaly? (not sure on that)

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I'm going to wait another month as price did not close above the 50-month EMA. I was originally ready to buy if price closed above the 200-month EMA but I'll see what another month of price action indicates before I start a position.

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Probably starting a position today on a monthly close above the 50-mo. EMA. Stop loss is a monthly close back below the 200-mo EMA. I will add a lot more on a monthly close breakout above the regression trend with an open order to buy at $150 beginning next month, if it doesn't happen today. I'll update the chart and these thoughts near the end of today's trading.

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I should also say, I wouldn't be surprised at all to see an initial shakeout if price breaks out since a lot of people are onto this chart pattern already (including myself). If I get stopped out initially, I'll be looking to try the trade again, if it can breakout again. There is minimal downside with my stop loss, although it is more risky because I like to act on monthly closing prices, so if the stock tanked during a certain month too much I might decide just to buy more instead of sell in that scenario.

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(chart updated below) I started a position with about 20% of what I'm ultimately planning on investing in this if it breaks out since it hasn't broken out yet. So not much risk taken yet. I wanted to start a position because price is breaking out of the 50-mo. EMA for the first time in over 3 years (on a monthly closing price basis). Will load the boat like I talked about previously at $150 open order or else a monthly close above the regression trend, if that happens. Otherwise this small initial position I started has a stop loss of a monthly close back below the 200-mo EMA, which is just below the 50-mo. EMA, so not much risk really unless price absolutely falls apart in a month's time, but even then I held a lot back so not much risk in general. I'll update the idea when I either add more or get stopped out of this bet.

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I should also note that I purchased this in my NQ account because I'm planning on holding it for probably 5-10 years so it would be taxed as long-term capital gains when sold hopefully at a nice profit. If I get stopped out then that will provide a nice little offset to ordinary income or offset capital gains in other positions.

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This month's action actually looks encouraging to me. In the past whenever it hit the downtrend line it was turned away pretty quickly. The fact that price is has hung out for a month near the line instead of forcefully being turned away is a good sign to me. I will update later today but based on current price I can't buy yet. If price can manage $1 or $2 up today I'll probably buy more with half of what I held back and update my open order at $150 to get the other half invested. If price stays around where it's at now or lower by end of day I won't be buying today as it's not a clear enough signal. It's right on the line of having a breakout (on a monthly closing basis) atm.

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Price hasn't budged all day, it's not a clear enough signal to buy today, it's still right on the line. I'll see what another month of price action indicates and leave open order in place to buy at $150 if it can get there. I like that open price a little bit more now after a month of consolidation - this month I thought I thought $150 might have been a little too close. Each month that passes makes that price get further and further above the highest trendline which is based on intramonth highs. Anyway, we'll see what happens next month..

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Rest of position (80% I held back) invested today at $150. Stop loss is a monthly close below $133.50 (200-mo. EMA). If this head fakes and I get stopped out, I'll be trying the trade again if it goes back up through this level I just bought at. The monthly close stop loss is riskier as I've stated before because price could absolutely fall apart in a month's time. I'm ok with that because this is just a portion of my portfolio, which is diversified in many other stocks.

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Looking like a classic fakeout so far but still another week and a half of trading days until the end of the month, I'll decide what to do then like I said before.

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This month's action looks fine to me as it turns out, didn't look very good 12 days ago but that has stabilized and as long as price doesn't fall apart today it's a breakout of the long-term downtrend on a monthly closing basis.

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Trade's not looking good atm but I'm still in. Earnings coming up next week will probably either make or break this trade but I'll wait until the closing price at the end of the month and provide another update then. (I have no idea which way price will go, I'm just trading on a chart pattern and that's it, pretty much a gamble at this point if price will react positively or negatively to earnings.)

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Last month was pretty crazy, price sold off significantly early on due to news that the former CEO of Redhat was leaving the company. After that, it hung on and initially reacted very positively to the earnings report mid-month only to reverse that strong move same day. The monthly closing price was not encouraging as price closed back inside the trendline. Still hanging on for now but it's heading in the wrong direction. Was this month's action enough of a shakeout or is there more downside to come? Time will tell. For now, I'm still in and stop loss remains the same.

(chart updated below)

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Pretty quiet month, short-term the trend remains down which is not encouraging but still hanging on above the long-term moving averages. It'll break one way or the other eventually.

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This shakeout (on the monthly chart) is going on 3 months now. Encouraged price found temporary support at the 200-mo. EMA and has rallied into month end and is going to again close above the long-term moving averages, but the short-term trend still remains down (based on monthly closing prices, just barely). A retest of the 200-mo. EMA would likely be bad but I will continue to wait to act on monthly closing prices. That served me well this past month with this stock and has recently in a few other stocks. I'm keeping my cards hidden for now unless a market maker actually takes the time to come read this post by little 'ole me (doubtful). Stop loss remains the same for now - monthly close below the 200-mo. EMA.

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I should also state that there is a spinoff coming for this stock. I'm not really sure how it will affect it personally but, from what I've been reading, it should help IBM's margins be better afterward without losing too much revenue. Shareholders of IBM will receive about 80% of the spinoff company (I'm not sure how, if at all, this will affect IBM's share price - if it will stay the same or mess up the chart pattern I've been following).

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I just read an idea about adjusting charts for dividends by ChristopherCarrollSmith on this site. I would encourage anyone reading this to check him out because I have learned some useful tricks from him such as this new dividend trick and he also taught me about looking at market cap, not just stock price. Anyway I adjusted IBM's chart for dividends and now I like it even more (see updated chart below). The chart I have been using looks like it's back in the regression trend channel, which is obviously not encouraging. That's not the case on the chart adjusted for dividends, there is a clear breakout on that chart and (so far, on a monthly closing basis) it is maintaining that breakout with dividends being included, not just price action. Pretty good stuff, thanks to him for that. With this high dividend yield I think the chart adjusted for dividends definitely needs to be used over the one that doesn't account for that.

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As you can see on this chart, price is well above the long-term moving averages. Over the past 5 years the 200-mo. EMA has provided support on a monthly closing basis, which is ironically what I've been trading on and mostly ignoring intra-month volatility (noise). At this time, I'm not sure what to do about my stop loss, considering updating to a monthly close below the 50-mo. EMA on the chart adjusted for dividends. On the new chart, instead of looking like just a 3-month shakeout, this now looks like a 5 month consolidation of a breakout, which is a good sign because if it were a false breakout it usually wouldn't spend this much time trading sideways, it would reverse quickly in general.

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Updated the chart again. While it has broken out of an 8-year downtrend (and is so far consolidating that), it failed at the top from early 2017. If price adjusted for dividends can get above that, the next important resistance level would be the all-time high of about $154 (on the adjusted for dividends chart).

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In hindsight I just also realized that waiting for a monthly close above $146 could have saved me from going through this shakeout in price (that could fall further). If price can retest $146 (adjusted for dividends) and breakout above it that would be a very good sign IMO. Likely strong resistance at $154 but I would expect it to eventually break through that as well, IF it can break through $146 on this new chart, and that's still a big IF.

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Rough day today, but I'm going to wait until the end of the month to make a decision on this. Price is currently back inside the regression trend but it has done that mid-month a couple of times in this consolidation pattern already. If it makes a monthly close inside the regression trend I think that would be a bad sign in the short-term. There is also a short-term gap from the drop reacting to earnings. That doesn't necessarily need to fill but whenever these gap up it seems like they always end up filling eventually. I'm hoping the same thing will happen here but, like I said, it doesn't necessarily have to do that.

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Better days may be ahead after the spinoff since it sounds like the business they are spinning off is what is dragging on earnings (in other words, people are selling out because they don't want to receive shares of the spinoff business and instead would rather buy IBM back after that happens).

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Pretty brutal month for this stock but price is still hanging on right at the 50-mo. EMA (on the new chart adjusted for dividends). There is also a short-term gap that could fill (doesn't have to but they usually do, eventually). So, I'm planning to hang on for another month and see what happens.

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Also, it sounds like the spinoff is happening next week. IBM stock should do better after that happens, may be a little more pain before that happens though.

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Chart has updated for the spinoff (see below). Price is still right at the 50-mo. EMA and I personally think that IBM stock will start to do better going forward but obviously I don't know what will actually happen. I can't comment on Kyndryl stock that was spunoff, I don't know much about it but I will say that I'm personally planning on holding onto my shares of that also since the sentiment is so negative on it right now.

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Going to hang on another month, price is still very close to the 50-mo. EMA, still hoping for a short-term gap fill.

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Price has filled the gap as I hoped it would with a strong candle this month and is back close to where I originally bought. I may use this opportunity to hit the sidelines temporarily on this one and wait for the signal that I now see on the new chart. Re-entry would be a monthly close above $138 (on the new chart adjusted for dividends). As usual, waiting until the end of the month to make a final decision on that.

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Temporarily exiting this trade. I'm down about 5% overall counting dividends received and including the stock that was spun off. Waiting for the parameters above to re-enter, which might be next month with the momentum that this thing has. (For the record I'm going to hang onto the Kyndryl stock since it's beaten down, no sense selling that at current price and that position is pretty minimal compared to IBM position.)

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Updating re-entry to a monthly close above $140 on the new chart adjusted for dividends. I think that would be a very good signal. Price did manage to get above that and I "cut off the head" from the all-time high, but I look at that as a false breakout and am therefore ignoring it. Otherwise the truly all clear, sky's the limit signal would be a monthly close above the all-time high around $145 on the new chart.

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Pretty indecisive candle this month (January 2022). I'll wait another month before potentially re-entering this trade (looking for monthly close above $140 on the new chart adjusted for dividends).

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Price action looks encouraging so far this year. While the broader market has been losing value, this stock is churning sideways with support recently holding at the 50-mo. EMA. Still waiting... looking for a monthly close at least above $135 and might wait for above $140 for a more clear signal to get back in.

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Might be getting back in this one again soon depending on how it performs on Tuesday (last day of the month).

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I'll probably wait one more month for a more clear signal and see what it does (unless it has a really good day today). In the past, this stock has gone through long periods of downward consolidation (the current one was about 8 years before it broke out and I originally entered the trade) before large, long-term upward moves. We could be on the verge of another one of those (may have already started but like I said I want to wait for a little bit clearer signal).

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Re-establishing a position in this stock today. This month's candle looks strong. I'm not setting a stop loss but if it can't find support around the 50-mo. EMA on a monthly closing basis I would get out. That's currently around $120 on the chart adjusted for dividends, so about 15% downside risk based on $140 entry.

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Indecisive candle this month but at least it looks like it's going to inch a little higher above last month's strong candle on the long-term chart. Early in the month, price briefly broke above the all-time high (on the chart adjusted for dividends) before being turned away for a shakeout mid-month and then retested the breakout from early in the month before being turned away again. Eventually I expect it will blast through this temporary resistance around $144. If not, oh well, I'm not risking much here with the stop loss parameter that I've established and the potential upside far outweighs that.

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Not a good day today so I thought I should provide an update, parameters remain the same, it's still above the 50-mo. EMA so not panicking over today's large gap down.

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Currently looks like it wants to retest the 50-mo. EMA. I think it depends if the major U.S. indices retest their 50-mo. EMAs.

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I'm watching the major U.S. indexes, particularly the Dow. If they look like they're going to head even lower and head toward 200-mo. EMAs then I will exit this trade because, if that happens, the market will likely drag this stock toward it's 200-mo. EMA where I would probably buy back in. Anyway, that's what I'm watching for but nothing to do for now as all 3 indexes are still above their 50-mo. EMAs. With that said, a retest of the 50-mo. EMAs in the Nasdaq, Dow and S&P 500 indexes would not be a good sign in my opinion because usually if support holds it briefly touches the 50-mo. EMA and then heads to new highs, usually it doesn't retest.

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Going to exit this stock, will consider re-entry if it can get down to it's 200-mo. EMA. Posted a chart of the Dow below. While support for IBM could hold here at the 50-mo. EMA, the Dow and other indices look like they want to head toward their 200-mo. EMAs, which would continue to drag IBM down if so.

Trade closed manually

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Also want to note that if the stock market indices do test their 200-mo. EMAs I will actually probably just play the market overall instead of getting back into this specific stock. It's fooled me a couple of times already and seems like it moves pretty much in step with the Dow anyway.

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I got faked out hard on this one. I might re-enter because this month is a pretty decisive breakout. I'm hesitant to do so because this thing has fooled me a couple times now but the fact that I'm hesitant probably means I should. If I do re-enter, I'm not setting a stop loss and I'm going to not watch it for a while. It should have a nice long-term rise eventually. I don't need to get caught up in the short-term volatility which has just cost me so far.

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Officially did re-enter, dividends set to reinvest, won't comment on this again for a while.

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Looking like yet another head fake. This time I'm going to stay in, so I wouldn't be surprised at all if they take it down to the 200-mo. EMA now with how manipulated this stock feels. If that happens, I'll just buy more. Eventually I think it will have a nice long-term rise but may take the better part of a decade to fully play out as I said in one of my first posts on this.

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Averaged down a bit just now with price currently hovering just above the 50-mo. EMA.

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Looking good, definitely due for a short-term pullback because it hasn't pulled back much in several months. That said, I'm holding long-term and don't mind if it keeps heading higher.

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Nice gap up today on earnings, so I'm going to try some short-term trading while maintaining a long-term position. Looking to sell some shares at the open if the strength holds and buy some (or all) of those shares back on a potential gap fill. I'm up close to 50% on the shares I bought near the 50-mo. EMA, so I think I'll trade those shares. (The pre-market gap is the orange line way up near the top of the chart.)

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Definitely due for a pullback as you can see on the chart but as I've stated, I don't mind at all if it keeps blasting higher. (I'm doing the short-term trading in my Roth IRA, so no tax consequences to consider. I hold positions in this stock in both Roth and NQ accounts.)

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Wow! I've been watching this stock closely for almost 3 years now and to move by over $20 in a day is insane! (Looks like it wants to hit $200 today.) I only short-term traded 1/8 of my total shares, so not missing out on much but a gap fill is looking pretty unlikely ATM...

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I have a limit order in place to buy back some of the short-term shares I sold at $175 IF it can get there. That's a little higher than the gap but I don't want to be too greedy. I'll buy the rest of the short-term shares back, and maybe add a bit more IF it keeps falling to around $165-$160.

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Testing ATH today (adjusted for dividends), may not be able to buy the short-term shares back but I'm fine with that. It's still due for a pullback and that would help clear the overbought RSI condition but at the same time it doesn't necessarily need to, RSI can stay overbought on the long-term chart for long periods of time (see 2011 - early 2012).

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Bought some of the short-term shares back after the close at $175. Will buy the rest back if it drops to $160.

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Filled the gap on the daily chart from last earnings, as I suspected it would eventually. Ironically, there is still a gap in the same area from this earnings.

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I just barely missed out on adding the rest of the short-term shares (got as low as ~$161 and my order was for $160)... Anyway, it appears to have found support. We're in no man's land ATM, hoping for a retest and breakout of the ATH that was set a few months ago.

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Just casually posting a monthly close above $200... love to see it!

PatientContrarian

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