Short Trade Idea
Enter your short position between $312.33 (an intermediate horizontal support level) and $324.90 (its 52-week high).
Market Index Analysis
- IBM (IBM) is a member of the Dow Jones Industrial Average, the S&P 100, and the S&P 500 indices.
- All three indices trade near record highs but decreasing bullish trading volumes offer a severe warning about the health of the rally.
- The Bull Bear Power Indicator of the S&P 500 Index is bullish with a negative divergence and does not confirm the uptrend.
Market Sentiment Analysis
Equity futures are mixed this morning as big tech is pushing and pulling markets in both directions. Meta Platforms surged as much as 10% in after-market trading, while Microsoft plunged by over 7%. Apple will report after the bell, and markets also await earnings from Mastercard and American Express, which could provide a snapshot of consumer health and spending. The US Fed kept interest rates on hold as expected. Still, gold and silver continue to rally as safe-haven assets, alongside the Swiss Franc, as investors hedge against further geopolitical and economic risks.
IBM Fundamental Analysis
IBM, nicknamed Big Blue, is a technology company present in over 175 countries. It acquired Red Hat in 2019 and has since entered that AI space by offering services including cloud computing, artificial intelligence, data and analytics, and cybersecurity.
So, why am I bearish on IBM following its earnings release?
IBM reported revenues of $19.69 billion and earnings per share of $4.52, beating expectations of $19.23 billion and $4.32, respectively. It expects full-year revenue growth to slow from 8% last year to 5% this year. So, I turned bearish because I believe the good news is already priced in. Its core asset, Red Hat, is trailing competitors, and the transition from legacy revenues remains slow. Execution and integration risks from acquisitions, including HashiCorp and Confluent, also remain.
IBM | Value | Verdict |
P/E Ratio | 35.03 | Bearish |
P/B Ratio | 9.84 | Bearish |
PEG Ratio | 3.25 | Bearish |
Current Ratio | 0.93 | Bearish |
ROIC-WACC Ratio | Negative | Bearish |
The price-to-earnings (P/E) ratio of 35.03 makes IBM an expensive stock. By comparison, the P/E ratio for the S&P 500 is 31.52.
The average analyst price target for IBM is $305.16. This suggests no upside potential, while downside risks have risen substantially.
IBM Technical Analysis
Today’s IBM Signal
- The IBM D1 chart shows price action inside a bearish price channel, which will witness a breakout at the open into my sell zone.
- It also shows price action just below its ascending Fibonacci Retracement Fan, which could spike into its 50.0% level today.
- The Bull Bear Power Indicator is bearish with a descending trendline, and I expect a short-term breakout followed by a mean reversal.
- The average bearish trading volumes are higher than the average bullish trading volumes, and traders should brace for a volume spike.
- IBM moved lower as the S&P 500 advanced, a significant bearish trading signal.
My IBM Short Stock Trade
- IBM Entry Level: Between $312.33 and $324.90
- IBM Take Profit: Between $257.25 and $263.56
- IBM Stop Loss: Between $334.65 and $348.03
- Risk/Reward Ratio: 2.47
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