On 12-15-2009, I wrote an article for www.safehaven.com titled, "What are some big individual stocks telling us?" I reviewed 5 big stocks, and frankly there were plenty to choose from that fit the mold of big stocks hitting major resistance, or about to hit resistance.
Major resistance is a place you expect some sort of correction, especially after such a big move into resistance.
I also focused more importance on IBM because of its rather large over weighting in the Dow Jones Industrial Index. I hardly ever trade in IBM, but rather keep an eye on it as one of my technical analysis tools, because it influences the major index so much.
The daily chart above of IBM reflects the stock climbed above its prior peak in the middle of 2008. The move up looks labored and tired, and might be a false break out.
It's trading just above the prior peak (now support), and right above it's trend line (also support).
We have bearish divergences on both the RSI and MACD, and a drop below both support areas would be viewed as quite negative.
I've drawn a circle around the July 2009 period, which highlights significant gaps in price, which should be tested if the current support levels are broken.
That's roughly a 15-30% correction in IBM should we test those levels. And as the key component in the Dow Jones Industrials, it has a far more negative impact on the index because of it's over weighting.
Above is the Weekly chart of IBM, and on a 15 year chart we can see IBM is testing two major peaks at the same price level. It's actually peaked its head above it, albeit minimally. From its bottom in late 2008, it's almost doubled, but the move up on the weekly chart is looking tired. And the RSI and AMCD are squarely over bought. To remain bullish, the stock needs to clear the prior peaks significantly and remain above those levels.
Above is the 20 year monthly chart of IBM. I've placed on it what I would refer to as a very bearish Elliott Wave count. Wave 3 usually comes on the high of the MACD, and the move up from 2008 lows looks like a tired wave 5 with declining volume in place. And again, the prior peaks are a significant area technically.
Summary:
I have no position in IBM, nor am I suggesting anyone take a position in IBM. Rather, I would like the reader to keep an eye on IBM, its movements have great influence on the DOW. In addition, a break down at these levels would be a bearish indicator for IBM and thus the over all market.
The Elliott Wave count in place above is a bearish view, but is probably one of many various counts at this point, and we should recognize that it's the market that dictates the wave count not the analyst and only future price action and time will provide better guidance.
If IBM does roll over, keep an eye on its movement lower, for an indication of the type of move it might be, and that may influence what type of correction the markets will have in correspondence.
