IBM Hits A Wall

10/10/07 09:05:24 AM

by Arthur Hill

Momentum and buying pressure are weakening as IBM challenges resistance.

Security: IBM
Position: Hold

The overall trend for IBM is up, and the stock met resistance around 120 in late July, early September, and early October. While the stock met resistance, the moving average convergence/divergence (MACD) formed a lower high in early September and again in early October. A double negative divergence is working and MACD moved below its signal line over the last few days. Upside momentum is clearly not as strong as before. See Figure 1.

FIGURE 1: IBM. The overall trend for this stock is up, but the stock met resistance around 120 in late July, early September, and early October.

Graphic provided by: MetaStock.

The accumulation-distribution line also sports a double negative divergence. The indicator peaked in July and also formed lower highs in early September and early October. The lower highs show less buying pressure (accumulation) on the last two advances. The indicator most recently peaked in early September and declined over the last five weeks. This shows distribution and it appears that somebody is unloading IBM as it challenges resistance.

These negative divergences serve as warnings, but we must still rely on the price chart for a confirmation signal and breakdown. The stock remains above the March 2007 trendline and the mid-September low. A move below 114 would break both and call for further weakness toward the next support zone around 105.

FIGURE 2: IBM, CUP-WITH-HANDLE. A cup-with-handle formation is revolving, with the August lows forming the cup, the September lows forming the handle, and rim resistance set at 119.

Graphic provided by: MetaStock.

As long as support at 114 holds, a cup-with-handle pattern is evolving (Figure 2). The August lows form the cup, the September lows form the handle, and rim resistance is set at 119. The stock broke above rim resistance last week but fell right back through and I am now marking resistance at 120. A break above this level on good volume would be bullish and signal a continuation of the August advance.

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 Hits A Wall

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