Don't Ignore This Chart!

Why IBM Has No Credibility As A Safe Investment

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IBM (IBM) has been a difficult stock for years. Investors keep holding 'Big Blue' expecting a turn around. This difficulty is the stock has no credibility as a safe investment. The last time IBM was a top quartile stock according to the SCTR is marked with a red arrow. There has not been one weekly close in almost 4 years that IBM ranked as one of the better stocks to own. Three months ago in April 2015, IBM broke above resistance at 165 and also broke above the 40 WMA on earnings. The resistance level of $165 was taken out but IBM made the highs for the move in the following week. IBM ended up stalling at horizontal resistance marked in red at $175 as investors unloaded the stock on the bounce. Since May, IBM has traded lower. The 40 WMA is pointed down and IBM is trying to find support today around the $165 level again. This stock may pay a dividend but the price action is easily creating losses larger than the dividend gains. 

The MACD has a negative profile as well. When weekly charts continue to roll over around the zero level on the MACD, there is little benefit in owning the stock. Until the MACD can start a trend of higher highs and the SCTR starts to suggest IBM is going to be a top performer, this is an investment choice that will irritate even the most patient investors. The current big picture of lower highs and lower lows since April 2013 suggests that technical investors should focus on another stock choice that is outperforming, rather than trying to be weighted into a "safe Blue Chip" stock. The yield on the dividend keeps rising as the stock keeps falling. If the dividend is safe but the investors capital keeps eroding, is this really a safe investment? The last time IBM made a new 52 week high was over two years ago in a big up trending market. IBM announced a new CEO on October 25, 2011 to take over January 1, 2012. The last time IBM was a top quartile stock was December 14, 2011 according to the SCTR. That was the last time the price action was better than 75% of the large caps stocks. That's disappointing and hardly credible as a safe investment until management changes the trend.

Good trading,
Greg Schnell, CMT

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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