International Business Machines Corp.: IBM Stock Chart Fuels Further Gains

IBM StockIBM Stock: Powering Higher

International Business Machines Corp. (NYSE:IBM) released its fourth-quarter and fiscal 2016 results on January 18, 2017. It topped estimates by beating marginally on both the top and bottom lines and, although this was the 19th straight quarter of negative revenue growth, investors had no issues shrugging off this potentially damaging news.

In the days that followed, IBM stock surged ahead, creating a new 52-week high.

Ever since International Business Machines stock bottomed in early 2016, a new bullish trend has continued to propel the stock higher. The trend feels like an unstoppable locomotive powering higher. Bullish signals continue to mount, and this suggests that the path of least resistance is higher. If this is indeed a new bull market for this stock, then it is only a matter of time before the previous all-time high at $193.69 is tested.

The following International Business Machines stock chart illustrates the indicator which suggested that the selling had concluded in 2016.

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Chart courtesy of StockCharts.com

In early 2016, International Business Machines reached a price point that suggested a possible low was in place. This low was suggested by the Fibonacci retracement numbers (highlighted in green in the above chart), which are used to identify counter-trend price objectives.

The theory behind Fibonacci retracement numbers is that, when a stock pulls back from a primary trend, it will retrace approximately 50% to 62% of the primary move before a bottom is formed. The 50%-62% retracement is what some traders refer to as “the box.” This zone is where a trader may choose to enter a long position, and/or cover a short position, depending on the strategy that is being employed.

When IBM stock fell into the box, it suggested that a low was not far from being formed. This suggestion was not ill-founded, because falling into the box marked the exact low, and a bullish trend commenced soon after.

The following International Business Machines stock chart illustrated the development that confirmed that a new bull market was already underway.

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Chart courtesy of StockCharts.com

The bear market that spanned from 2013–2016 was defined by using a downtrend line. This trend line is created by connecting the peaks on a price chart, and is identified by the stair/step price action of lower lows and lower highs. This downtrend guided IBM stock from the upper left to the lower right of the chart.

In order to confirm that a bull market had commenced, IBM would have to break above the level of resistance outlined by the downtrend line. All attempts for IBM stock to advance beyond this trend line were rejected. It was not until after International Business Machines stock fulfilled its counter-trend price objective that the stock was able to close above this trend line.

This breakout is highlighted on the International Business Machines stock chart above, and it serves to confirm that a new bull market has begun.

The indicator in the lower panel labeled “MACD” supported this breakout. The moving average convergence/divergence indicator is a simple yet effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum. A bullish signal indicates that momentum is favoring an advance, and as a result, the path of least resistance is higher.

The following International Business Machines stock chart illustrates the recent price action that supports further gains.

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Chart courtesy of StockCharts.com

The recent price action has been nothing short of bullish. The bullish price action consists of impulse waves that advance the price, and consolidation waves that unwind any overbought conditions that were created and which set up the next advance.

The breakout highlighted on the stock chart above suggests that a new impulse wave has just begun, and IBM stock is due to appreciate.

The theory behind these waves is that the current impulse wave that is in development should mirror the initial impulse wave that was created prior to the consolidation wave. Under these pretenses, a potential price objective can be created. The recent price action suggests that the next impulse wave can propel IBM stock to $188.00. This target is just shy of the all-time high of $193.69.

Bottom Line on IBM Stock

I am bullish on IBM stock because the bullish trend and price action support this notion. The price action also goes on to suggest that International Business Machines stock will be testing its all-time high in the not-too-distant future.