Big Blue Makes A Big Break

07/15/05 02:05:13 PM

by Arthur Hill

IBM is leading the market once again with a high-volume breakout.

Security: IBM
Position: Buy

On the price chart, IBM declined sharply in April 2005 and then began a long consolidation. A triangle evolved over the last few months as the stock digested the losses incurred from January to April. Triangles are neutral patterns that are dependent on a break for a directional signal. The move above the upper trendline and prior highs is bullish and opens the door to further strength.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

Volume and money flow confirm strength. While volume on the broader market has been just average recently, IBM surged on the highest volume since mid-April. Also notice that volume expanded the last three days, and Chaikin money flow moved to its highest level of the year. Chaikin money flow had been negative for most of 2005 with just three minor blips into positive territory (gray arrows). The current one-day blip exceeded the prior blips, and buying pressure is clearly picking up.

The upside target is around 90. The first projection is based on a move to broken support around 91. Broken support levels often turn into resistance, and this was confirmed with the late March highs (gray oval). The second projection stems from a 62% retracement of the prior decline. The stock was clearly oversold in mid-April and worked off this condition with a long consolidation. The breakout turned the trend bullish, and we can now expect at least a retracement of the prior decline. A move below the late June low would negate the breakout and turn the trend bearish.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Big Blue Makes A Big Break

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