International Business Machines Corp. has been a component of the Dow Jones Industrial Average since June 1979. The stock set its all-time intraday high of $215.90 in March 2013 and has been trading sideways to down since then, trading to a multi-year low of $105.94 on Dec. 26 as the stock is becoming "too cheap to ignore."
IBM has been a "Dog of the Dow" for several years and now it's the cheapest stock in the Dow 30. The stock has a P/E ratio of 8.00 with a dividend yield of 5.74% well worth the risk to begin a position now.
IBM closed Friday at $113.03, down 26.3% year to date and in bear market territory 34% below its 2018 high of $171.13 set on Jan. 18. The stock is up 6.7% since setting its Dec. 26 low of $105.94.
The company has beaten analysts' earnings-per-share estimates for 16 consecutive quarters, but cautious guidance has hurt the stock's performance. In my opinion, the tech giant's use of state-of-the-art mainframe computers for its cloud computing applications will eventually take market-share from the cloud-computing competition that rely on a farm of smaller server computers. Its AI applications are based on the Watson platform, which needs to become more user-friendly. IBM is attempting to be more competitive in data analysis, mobile technologies and security.
The daily chart for IBM shows that the stock has been below a "death cross" since May 14. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average and indicates that lower prices lie ahead. Note how the stock could not hold its 200-day SMA of $150.15 on Oct. 5 and my quarterly pivot of $149.60 at the same time. This indicated risk to my semiannual and monthly pivots at $122.09 and $120.47, respectively. For this week, I show a weekly pivot at $110.30.
The weekly chart for IBM ended last week negative but oversold with the stock below its five-week modified moving average of $119.95 and well below its 200-week simple moving average or "reversion to the mean" at $151.43 last tested during the week of Oct. 5 when the average was $153.66. The 12x3x3 weekly slow stochastic reading ended last week at 13.34 down from 14.67 on Dec. 21, moving further below the oversold threshold of 20.00.
Given these charts and analysis, my trading strategy is to buy weakness to my weekly value level of $110.30 and reduce holdings on strength to my semiannual pivot of $122.09.
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