The well-known American multinational technology company, International Business Machines Corporation (NYSE: IBM) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern: As you can see from the daily chart of IBM, the stock had been forming a falling wedge pattern for the past several months. This is marked as purple color lines. IBM had previously taken support at the bottom of the wedge before bouncing back again. The stock is currently near the breakout level of the falling wedge pattern. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
Daily Chart – IBM
#2 RSI Strong: Relative strength index (RSI) is currently above 50 and moving up. This indicates the strength of the current upmove.
[hana-code-insert name=’adsense-article’ /] #3 IH&S Pattern: The stock’s daily chart shows that the stock is currently forming an Inverted Head and Shoulders pattern.This is marked in the chart in orange color.
This is a possible sign of an upcoming bullish move.
#4 MACD above Signal Line: In the daily chart, the MACD line (light blue color) has crossed above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 Above MA: The stock is currently trading above its 50-day SMA, indicating possible bullishness.
#6 Bullish Stoch: The %K line is currently above the %D line on the stochastic. This indicates possible bullishness.
#7 Double Bottom Pattern: The stock is currently forming a double bottom pattern in the weekly chart. This is marked in pink color. A double bottom is a bullish reversal pattern and the breakout from it would indicate that the stock could possibly move upwards.
Weekly Chart – IBM
#8 RSI moving up: In the weekly chart, the RSI is currently moving up from oversold levels, indicating strength.
#9 CCI moving up: The CCI is above zero and moving up from oversold levels in the weekly chart. This is also a bullish sign.
#10: MACD cross: The MACD line has crossed above the signal line in the weekly chart. This is a bullish sign as well.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase half the intended quantity of shares of IBM after the breakout from the IH&S pattern at around $149. The remaining shares can be purchased once the stock closes above the 200-day SMA of around $151.
These buy levels are marked as green dotted lines in the daily chart above.
TP: Our target prices are $165 and $175 in the next 4-6 months.
SL: To limit risk, place a stop loss below $141.80. Note that the stop loss is on a closing basis.
Our target potential upside is 9% to 17% in the next 4-6 months.
- Entry at $149: For a risk of $7.20, our first target reward is $16 and second target reward is $26. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $151: For a risk of $9.20, our first target reward is $14 and second target reward is $24. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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