|Figure 1 suggests a short-term sell. Longer term, it is still bullish as the stock is above its 200-period exponential moving average (EMA) on both daily and weekly charts and above several trendlines on those charts as well.|
|On the daily chart, the 20-day EMA served the short-term trader well since it crossed above the 200-day EMA. This exponential moving average proved to be a strong support line as IBM thrusted higher. Since this top, this same 20-day EMA line is just as relevant on the bear side, as it has switched from previous strong support to what is now overhead resistance.|
|Figure 1: IBM. IBM drifts lower looking for a possible bounce off lower targets.|
|Graphic provided by: StockCharts.com.|
|Hindsight is a beautiful thing. I often mention the importance of multiple divergences, and here, a great example is illustrated. Note the multiple negative divergences (green arrows) shown as the stock pushed higher, yet the lower indicators went the other way. This is a superior trading signal most times, and this was a prime example.|
The Chaikin money flow (CMF) indicator also showed an extreme negative divergence. When buying power vanishes, it is a tipoff that bullish forces are abandoning a stock and the stock is due for a downleg.
|Two lower targets are shown via the black arrows, the higher one being the oft-mportant 200-day EMA. Stocks often will attempt a bounce at or near this line, and this was the case several weeks ago. Note how this level also coincides with a previous resistance level from last summer.|
Should this level of ~ 91.40 fail to hold, then the next possible support level is the previous trendline at $88.50.
|In summary, from a short-term trading point of view, I am bearish on IBM until it can sustain itself above its 20-day EMA. A bounce off either target level may give a short-term trading opportunity as a "failure" move to overhead resistance at either the 20 EMA or the congestion area at or near $95.|
Click here for more information about our publications!