IBM On The Verge Of A Big Break

01/25/06 10:59:42 AM

by Arthur Hill

IBM failed to hold onto its early January gains and is on the verge of a major support break.

Security: IBM
Position: Hold

IBM has been working its way higher since May 2005 and formed a rising price channel over the last few months. The lower trendline has been touched three times, making this a valid support line. It takes at least two lows to draw a trendline and the third touch validates it as a support level. Despite this validation, the early January surge failed to hold and IBM fell below this trendline over the last few days. The uptrend is under assault and IBM now looks vulnerable (Figure 1).

FIGURE 1: IBM. IBM has been working higher since May and formed a rising price channel over the past few months, but the lower trendline has been touched three times, making the stock now look vulnerable.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

The stock never recovered from its December gap. The gap below 95 dealt the bulls a serious blow and the stock consolidated over the last several weeks. This gap turned into resistance and IBM failed to move above 95 on three separate attempts (gray arrows). Each attempt featured a gap and each attempt failed after a day or two. In particular, the stock gapped sharply higher on January 6 and there was no follow-through at all. This big gap was filled with the decline over the last four days.

FIGURE 2: IBM. The stock has yet to break support, so there is still a glimmer of hope.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

Despite these failures and the trendline break, IBM has yet to break support around 80-81 (Figure 2). This support area holds the last glimmer of hope for the bulls. A move below 80 would signal a continuation of the December decline and target a decline to at least the mid-80s. Should the stock manage to hold support, look for a move above 85 to unleash the bulls and keep the rising price channel alive.

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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