After posting rather lackluster earnings last month, IBM corrected a good 10% of the highs – historical highs, that is. Do you blame anyone for taking some profits? Not at all. In fact, it made sense. No, IBM’s business is not slowing down – they actually bumped up revenue guidance. But the market was due for a correction and well, ‘Big Blue’ will not go unscathed. The market corrected roughly 5% (SPX 500) from the recent highs and now seems ready to get going.
The uncertainties over the market with issues ranging from the fiscal cliff to the election and now Hurricane Sandy have put some fear and uncertainty out there. For good reason! However, stocks continue to move on their own merit and will be rewarded or punished based on what they offer in terms of results. The VIX shows a rather low reading, hovering near 17%, and with the jobs report and the election coming next week it’s rather odd to see this much complacency with there is so much unknown. Names like IBM are telling us the story.
Technically, the chart shows a pullback over the last few weeks which knifed through some short term moving averages. That’s a concern, but the company announced on Tuesday a massive buyback along with another big buyback coming (likely April), which is impressive as they are looking to buy with the stock near all-time highs. Could they find a better return on their cash than buying their own shares? That is intriguing.
In any case, a move over 198 is likely a change in trend. As the chart below shows the momentum indicators are just starting to turn higher. Picking up an at the money call would be prudent for a reward up to the 200 area, perhaps a bit longer.
Position Holding: short IBM put spreads, long IBM calls
