Think IBM ($IBM) is a sell? Think again. Here’s your trade – July 18, 2022


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I want to look at IBM ( NYSE: IBM ). I actually don’t want to look at IBM ( NYSE: IBM ). I used to trade IBM ( NYSE: IBM ) during this part. When I first started trading this along with every other stock, it made me feel like a genius. By the way, you will notice that IBM ( NYSE: IBM ) peaked much earlier than the Internet bubble when that popped in March of 2000.

This has not been a good stock for me. Frankly, I don’t think it’s been a good stock for anyone else. If you are looking to hold the stock, well then it really hasn’t been a good stock for you, relative to other places you could put your money. If you are just trying to trade the stock I think there have typically been better opportunities elsewhere. That is just my personal opinion. Nothing against IBM ( NYSE: IBM ), okay? Nothing at all.

But I kind of have a trade for us here. This is a weekly chart, you see how much the stock is down, and it’s only Monday. This took a real shellacking today, and why is that? We will look at the daily charts, and earnings. They report earnings, and shall we just say, they weren’t exactly stellar. Their revenues topped estimates so that is a good thing. Basically, everything topped estimates, but guess what? Estimates were apparently a little bit high.

So we’ve got this stock that just absolutely tanked. As I said, 5.5 percent, and where this stock opened up was just about identical to where it closed on Friday. So this is a pretty nasty move. So is it too late to sell IBM ( NYSE: IBM )? Yes, of course, it is. The question is, is it too early to buy IBM ( NYSE: IBM ) or should you be snatching up everything you can? That’s a question that you are going to have to figure out for yourself, but I do have a trade for you.

This is the thing, if you look at the blue squiggles here, these are the Bollinger Bands, 2 standard deviations away from the value of the 20-day moving average. Now, the stock is typically like 91 percent of the time, it is going to be closing within these 2 standard deviations, that is just statistical analysis. The wider these bands get the rarer it is that the price ever will go outside the bands.

It is just like, again, standard deviation statistics, that is what statistics do, they measure numbers and probabilities. And so with this thing out beyond the 2nd standard deviation downward, that’s kind of a rare event. You will see back here it did it not even for a day. It just moved down below this and then recovered and kept going higher.

The same thing here, it just kind of tagged it a little bit and then ran higher. Here we had a little bit of exception, well, it was kind of a big exception if you are trying to buy this pig. But we had an exception where several days in a row the stock traded below the 2 standard deviation level and just kept going and then finally it ran up.

One thing that we don’t see is 3 standard deviations. So I want you to look at this and watch what happens when I change the 2 to a 3. Now, this is something that you don’t see every day. If we just look at the Bollinger Bands themselves, now this is right at 3 standard deviations. This only happens less than 1 percent of the time. In this entire chart, at no time intraday or certainly closing value, has this come close to 3 standard deviations. The one time that it has here, well guess what happened? Boom, the stock ran higher.

Typically, though not always, but typically you see back here you see the rebound. When a stock falls so far that it is below 3 standard deviations from where the 20-day moving average is, that is just the point of central tendency, you can use whatever moving average you want. I think that 20 is the best, which is why I use it. Whenever this falls this far your odds of making money by simply buying the stock are really, really high. Just because from a statistical standpoint this stock is breaking the rules, it has gone too far down.

And so tomorrow morning, when you look at IBM ( NYSE: IBM ), I would just suggest really just kind of looking at 133.00. If the stock starts trading above 133.00 I think you’re good. Another way you could trade it, which would be really, really tight, you could look at the low of 131.70 and you put a stop a little bit below that. You can see this is the 200-day moving average so maybe you put a stop just below the 200, maybe at 131, you are not even risking 1 percent on that trade.

This kind of market just kind of sucks. But in this kind of market, this is the type of trade that will tend to work for you. As always, it is your trade, it isn’t mine. Make sure that you are managing your risk with position sizes that are proper and appropriate for you. And also with stops that you can defend. Meaning, if I said, why did you put the stop there? You would be able to say, well, I did it because (fill in the blank) below the 200-day moving average, even number, whatever you want to call it, but you need to have answers to those questions.

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