Chart: IBM Under Heavy Pressure

Posted by jbrumley on January 20, 2017 8:41 AM

After an initial post-earnings bounce, IBM is headed for a gap-lower open.

By Gary Morrow, TheStreet.com

IBM (IBM) initially surged following its better-than-expected earnings report before losing momentum early in the overnight session. Heading into Friday's opening bell, the stock is headed for a very damaging gap-lower open and is leaving behind a ominous top near $170. If the stock is unable to stabilize quickly, a deep pullback could be on the way.

In mid-October, IBM reached its 200-day moving average under extreme pressure. This earnings-inspired selloff quickly reversed, and by election day the stock had left behind back-to-back monthly lows near its 200-day moving average. The rally that followed drove the stock to new 2016 highs before stalling near $170. This key area, which capped the 2015 highs as well, proved difficult to penetrate.

IBM entered a narrow consolidation pattern in mid-December and remained within this range heading into Thursday night's earnings report.

IBM's post-earnings surge will only add more downside pressure now that the stock has fallen to new January lows. The stock is quite vulnerable now, with the addition of a declining 40-week moving average overhead.

Investors should be prepared for a much deeper pullback from this major resistance zone. The initial downside target is a very solid support zone between $158.30 and $155.50. This key area includes the December low near the upper band and the Nov. 10 breakout gap near the lower band. IBM's 200-day moving average, which held the October and November lows, is in the middle of the support area. If Big Blue can regain its footing near this area, a much lower entry opportunity will be at hand.

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Courtesy of TheStreet.com

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