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Earnings season kicks into high gear this week, which means it’s time to keep an eye out for new trading opportunities. One of the major earnings reports I will be focusing on this week is that of International Business Machines Corp. (NYSE: IBM ). I think IBM stock looks great technically; that is, it offers well-defined areas of technical support and resistance, which allows traders to accurately define their risk.
IBM is set to report its next batch of earnings on Thursday after the close.
An important technical analysis phenomenon that I highlight in this column and discuss with my Clubhouse members on a daily basis is “confluence zones.” These confluence zones are made up of a number of technically important indicators that all come together at the same price area, which creates strong areas of technical support or resistance.
Just like it is crucial to draw lines on charts using a crayon as opposed to a pen, confluence zones are best looked at as areas of support and resistance than as defined points. Thus, traders and active investors will find that the most efficient use of confluence zones isn’t pinpointing trade targets, but to gain perspective and to manage risk.
IBM Stock Charts
Starting off with the multiyear weekly picture, we see that IBM stock spent a lot of time between 199 and summer 2010 (so, a solid decade) trotting in a bigger-picture sideways consolidation phase. This sideways market ended in September 2010 as IBM pushed above its previous highs from 1999, which gave way to a sharp rise into the 2013 top.
From 2013 into the early 2016 lows, IBM stock once again fell into a correction phase that saw shares drop 45%. So that fully erased the 2010-13 rally.
Click to Enlarge
Longer-term investors with perspective should also note that this retest of the 2010 breakout area (blue horizontal box on the chart) may have been a necessary evil.
Since the 2016 lows, IBM stock has pushed meaningfully higher and even broke out of what maybe labeled as a bullish flat pattern (black parallel lines). Heading into this week’s earnings report, however, IBM is bumping right into its red 200-week moving average (red line), which had acted as support in 2014.