Tuesday, July 19, 2011

Trade Update: IBM

I have had my eye on IBM to short for quite some time now. Yesterday we finally took the plot when we shorted IBM at $174.22.

The shares of IBM have been on quite a run since breaking $150 back in January. They are trading well north of the 100 day moving average, which has provided support twice during the move. But I think IBM might be setting up a double top here in July.

What we have to look for it is this. The 52-week high of IBM is $177.77, which it hit on Wednesday of last week. If IBM is going to pull back as I suspect then you would not expect it to go back above that level. In fact I put our stop at just above $176 and that is where we will hold it for now. If we get stopped out above $176 fine we will just let it go. On the other hand if IBM starts to decline we will add to our short position.

How far will it fall? There is no way to tell. But the first stopping place looks like it might be $160 from the chart. You can see how it sprang off of that level last month. So, I would not be surprised to see IBM back down testing $160 again. Reminiscent of how it broke $150 in January only to retest it in March, where coincidentally
it intersected with the 100 day moving average. Stocks don't move in straight lines. If we get really lucky we could see IBM go all the way down to $150 a share which is where this latest run began. The $150 level may provide formidable support and I would be surprised to see IBM breach it.

Now $150 is a long way from here. Let's just take this one day at a time. For now keep your position size of one quarter and your stops firm at $176.66.

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