IBM Rallies to 8-Year Trendline Resistance
International Business Machines Corp. (IBM) has rallied to 8-year trendline resistance for the second time this year, setting up the fifth breakout attempt since the tech behemoth topped out in 2013. A short-lived June breakout trapped new shareholders in an ugly reversal that dropped the stock to a 5-month low less than 3-weeks ago. A successful advance should attract widespread attention, marking the end of IBM’s historic fall from grace.
Details on Upcoming Spin-off
The company is scheduled to spin off legacy divisions from a new faster-growing entity prior to year’s end. ‘Software’ leads the new segment list, underpinned by Red Hat and the “adoption of its OpenShift hybrid platform” while ‘Consulting’ will focus on digital strategy and design as well as 3rd party relationships. In addition, the ‘Infrastructure’ segment is expected to post flat revenue, comprised of IBM Systems (IBM Z, POWER, Storage), along with IaaS + Infrastructure.
Credit Suisse analyst Matthew Cabral raised his firm’s price target to $176 from $167 after management’s upbeat presentation, noting that “IBM hosted an investor briefing outlining its hybrid cloud strategy, business plan and target financial model post the expected C4Q spin-off of its MIS business. Management unveiled a simplified post-spin reporting structure & detailed midterm (2022-’24) expectations for its three primary segments”.
Wall Street and Technical Outlook
Wall Street consensus has been bearish for years, stuck at a ‘Hold’ rating now based upon 5 ‘Buy’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. In addition, a number of firms have dropped coverage. Price targets currently range from a low of $115 to a Street-high $176 while the stock is set to open Wednesday’s session about $8 below the median $150 target. This low placement is unlikely to help or hurt the breakout attempt due to chronic negative sentiment.
IBM fell to an 11-year low during March 2020’s pandemic decline and bounced in a two-wave advance that reached multiyear trendline resistance in April 2021. The June breakout failed, giving way to persistent downside that found support after undercutting the 200-day moving average in September. The stock has ticked higher in a steady advance since that time but technical improvement has been constrained, suggesting that price development needs more time and lots more bulls to generate sustained upside.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.