IBM Buyers in Control Ahead of Earnings

International Business Machines Corporation (IBM) reports first quarter results after Tuesday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $2.34 on $18.58 billion in revenues. The stock gapped up nine points in an 8% buying spree on Jan. 23 after the company met modest fourth quarter estimates and raised 2019 guidance, and it has added another 9% in the past three months.

The old-school tech giant is partnering with six banks to issue stablecoins that can be used as currency on their World Wire payment network. The digital tokens will be backed by fiat currencies, eliminating a major barrier for traditional businesses seeking to access the obtuse cryptocurrency system. The partnership could also drive earnings growth at the shrinking giant, ending a multi-year downtrend that dropped Big Blue to a nine-year low in December.

A multi-year downtrend ended within a few cents of the 1974 low in 1992, giving way to a slow-motion uptick that accelerated to higher ground in the last years of the internet bubble. The uptrend reversed at $138.35 in July 1999, initiating a steep decline that posted three volatile lows into October 2002's four-year low in the lower $50s. It bounced to $100 in 2004, marking the highest high, ahead of a 2007 breakout that stalled within nine points of the prior century's peak in 2008.

The stock fell to a six-year low during the October crash and turned higher in November, completing a round trip to the prior high in October 2009. It cleared that resistance level one year later, entering a healthy uptrend that booked the strongest gains in more than a decade, before hitting an all-time high at $215.90 in 2013. Committed sellers then took control, carving a multi-wave downtrend that posted three lower highs into January 2018.

The fourth quarter decline violated the 2016 low at $116.90 in December, generating a climactic downtick, followed by a reversal that remounted resistance in January 2019. The rally cleared resistance above $135 in February, while continued upside into April has now reached a six-month high in the $140s. Even so, price action still hasn't cleared the 50-month exponential moving average (EMA), which was broken on heavy volume in 2014.

The monthly stochastics oscillator crossed into a buy cycle in January and reached the overbought level this month. This is a highly bullish reading because the two indicator lines are still widening, signaling an increase in relative strength that predicts even higher prices. However, extensive technical damage after five years of lower prices has taken its toll, lowering the odds that the stock will make a rapid recovery to multi-year highs.

The on-balance volume (OBV) accumulation-distribution indicator posted a new high in 2012, one year ahead of price, and entered a brutal distribution phase that ended at a nine-year low in 2016. Three higher highs in the past three years indicate extensive bottom fishing, despite abysmal returns. OBV has now reached 2014 levels, confirming unusually strong 2019 price action. In turn, this may indicate that the long-term downtrend has finally come to an end. 

The rally has reached the narrow alignment between 50% retracements of the 2009 into 2013 uptrend and the 2018 downtrend, marking a major inflection point ahead of first quarter earnings. Look for a buying surge after the news to stall at the October high above $150, which also marks the .618 sell-off retracement level. Conversely, a sell-the-news reaction is likely to target the January unfilled gap between $122 and $131, with a gap fill marking a low-risk buying opportunity. 

IBM stock has rallied more than 35% off the December low, signaling a potential end to the multi-year downtrend.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.