So International Business Machines (IBM) is doing well in the clouds? What do you do now? Time to sell it. (October 23, 2017)
IBM
I want to look at IBM ( NYSE:IBM ) here. Hopefully, you know this, they reported great earnings last week. They are going into the cloud; everything is doing great, etcetera, etcetera. Those folks that were buying here when the stock bottomed in October are actually doing pretty well. They are still up about 15 percent or so.
Here is the deal: This is a pretty short video because it doesn’t have to be long. This pullback today is not your buying opportunity, it is not. It is your first warning that if you are long you need to be thinking about not being long. You need to start thinking about selling this stock. This is kind of a classic volatility squeeze or at least it is looking that way. The Bollinger Bands here were spread pretty thin; they were pretty tight.
Then the stock gaps up. Huge massive volume and for the next three days closes well outside the upper Bollinger Band; two standard deviations above the 20-day moving average. And then finally today the stock opened flat and then traded down, basically all day long. What this does is, it takes the stock back in a reasonable range. But because these bands are SO tight and this stock is SO extended above this 50-day moving average, where it hadn’t been for quite a while. By the way, you can look at this and say, “Well, 10 percent, 9 percent isn’t that extended.” For IBM ( NYSE:IBM ) it actually is.
So, look at this and if you are the shorting kind you can consider selling this stock short. And then you would buy that position back. If the stock starts moving against you, you would set a buy stop right above Friday’s intraday high. Then the only way you are going to lose money is if we are totally wrong about this analysis and the stock actually takes off on the next leg higher. In which case, if it does that close out your short position and go long. Because a stock that moves like this, a massive mega-cap stock like IBM ( NYSE:IBM ), pulls back for one day and then shoots up again, that is a stock that is under really, really strong demand and it is moving higher.
For me, for my money, you need to sell this stock and even consider shorting the stock. My bet is, you are going to make some money on it.
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