IBM Consolidates Below Key Moving Averages

03/02/06 08:40:20 AM

by Arthur Hill

IBM is stalling near a key long-term moving average, but has yet to show strength that would indicate a bullish reversal.

Security: IBM
Position: Hold

I featured IBM in late January and the stock broke support in early February (Figure 1, blue oval). Despite the support break, the stock held relatively firm over the past few weeks and consolidated within a tight range. The top window shows Bollinger Band width, and this indicator contracted to its lowest level in months (red oval). Such a contraction tells us that volatility is relatively low and a volatility expansion may be around the corner.

FIGURE 1: IBM. The stock broke support in early February (blue oval), while the Bollinger Band width contracted to its lowest level in months (red oval).

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

The current trend for IBM is down and it is up to the bulls to prove the bears otherwise. The stock broke below its 50- and 200-day simple moving averages (SMA) over the last three months. Note how the 50-day SMA turned into resistance in January, and this moving average is now moving lower (currently just below 82). The stock broke the 200-day SMA in early February and has remained below most of the last few weeks. There were a few forays above the 200-day SMA, but none of them held and the stock has yet to recover.

While I am impressed with the stock's firmness over the last few weeks and the ability to consolidate around the 200-day SMA, the stock remains short of a bullish breakout. IBM established resistance at 82 in mid-February and this is the level to beat. A move above 82 would break both moving averages as well. This would be enough to reverse the current downtrend and look for higher prices. I would also turn to volume to confirm any breakout. Downside volume has outpaced upside volume since January 20 (gray box) and this needs to change to validate a breakout.

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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IBM Consolidates Below Key Moving Averages

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