IBM Stock: Bullish Breakout
I have been waiting and watching for the last pieces of the puzzle to finally drop into place so I could decisively say I am once again bullish on International Business Machines Corp. (NYSE:IBM) stock.
That moment has finally come.
When I refer to pieces of a puzzle, I am referencing patterns and signals that appear on the IBM stock chart. Using patterns and signals to discern trends and forecast the future direction of stock prices is known as technical analysis. This is the body of knowledge I use to analyze potential investments and develop appropriate trading strategies.
I had mentioned in my previous report about this company that IBM stock had a number of signals that were already alluding to the likelihood that the bull market was in development—but that there was one more hurdle that needed to be surpassed before I could finally be bullish on International Business Machines stock.
The following International Business Machines stock chart illustrates the first piece of the puzzle that suggested a bull market was in development.
Chart courtesy of StockCharts.com
The first piece of the puzzle hinting that once again a bull market was being formed was the Fibonacci retracement numbers (highlighted in green). These retracement numbers are a very popular tool used by many technical traders. This tool is used to identify countertrend price objectives.
In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move before the predominant trend will reassert itself. Traders refer to this zone as “the box,” and they will be eyeing this area as one in which to enter long positions, and/or cover short positions.
International Business Machines stock conformed to this tool perfectly, but it did take three years until this retracement was finally complete. Now that the pullback in IBM stock was complete, the groundwork for a resumption of the bull market has been routed, and it is at this point that I would be looking for bullish signals to suggest that the trend had indeed reversed.
The following International Business Machines stock chart illustrates the bullish signal that I have been looking for.
Chart courtesy of StockCharts.com
The downtrend (highlighted in blue) is the trend line that has pushed back any bullish attempts at a true bull market. It has been acting as a hurdle that IBM stock needed to leap over in order for the bulls to fully rejoice and celebrate that a new bull market had begun.
This trend line is created by connecting the peaks on a price chart. This trend is identified by lower lows and lower highs. There should be no mistaking a downtrend, as it can easily be identified as the price moves from the upper left to the lower right of the chart. These trends persist until the price gathers enough momentum to finally break above it.
A break above this trend line is the last piece of the puzzle I had been waiting for. On December 8, 2016, IBM stock was finally able to break above this level, indicating that the bear market is over, and that a new bull market has begun.
In my previous report on IBM stock, I outlined that a bullish moving average convergence/divergence (MACD) cross had increased the possibility that a breakout was going to occur. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. A bullish signal indicates that bullish momentum has overwhelmed any bearish momentum and that the path of least resistance is higher, supporting a price advance.
If this indeed is a new bull market for IBM stock, then the previous all-time high at $193.69 will be tested.
Bottom Line on International Business Machines Stock
I am now bullish on International Business Machines stock because the signal I have been long awaiting for has finally arrived. I will remain bullish on IBM stock for as long as the signals on the price chart warrant holding this view.