DataTrader: IBM and the Big Sale in Big Blue
An earnings miss from IBM (IBM) and a less than knock-it-out-of-the-park outlook appears to have provided the catalyst many traders and investors needed in order to take profits in the stock. Shares of IBM have closed lower for three days in a row, the last two closes in technically oversold territory.
Should traders and active investors run for the exits? Is it true, as a Yahoo! Finance “Breakout” segment asked, that IBM is “signaling tech weakness ahead”?
One thing that is clear in the data is that shares of IBM have already pulled back to levels where it has historically been able to atract buyers – at least in the short term. As traders and investors saw in August and again in September, sharp sell-offs have been met by no less sharp rallies, as buyers rushed in to take advantage of “sale prices” induced by selling that had reached extreme levels.
Consider IBM’s five-out-of-six day rally following an early August sell-off, or the stock’s seven-day win streak after a sharp drop in early September. Both are recent examples of the stock’s ability to make strong, short-term bounces after sellers took the stock to exceptionally oversold levels. This is especially the case when IBM is trading in bull market territory, as Big Blue has been trading for the vast majority of 2011.
IBM’s pullback makes the stock one of the highest rated stocks in the Dow industrials in terms of the historically likelihood that IBM will again attract buyers. After all, the stock’s curent pullback, from the perspective of those who liked Big Blue’s prospects when it was trading at year-to-date highs just a few days ago, represents a discount in recent days of more than 6%.
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David Penn is Editor in Chief of TradingMarkets.com