When i am trading, i tend to go for a hybrid of fundamentals and technicals but here i am trading IBM as a momentum play with some simple technical analysis.
Disclaimer: I do have a small call position into earnings but i may close it out ahead tomorrow depending on the tape action.
Ok so this is just a simple daily graph courtesy of ThinkorSwim, i attached a simple 200ma, bollinger and a volume profile on the chart. I think it is safe to say that IBM is reaching an inflection point. There has been a good run from 172 to 190ish ahead of earnings. The last time they reported, they got clobbered so the extreme in sentiment is where i am trying to find an edge.
The price action is butting up against the 200sma, we’re at the upper end of the bollinger and with some resistance around this 193ish area.
Basically if they breakout, 197-202 is likely the next stop, if it overshoots, i suspect they’ll roll it back down for the next options expiration.
If they miss, my hunch is that it is going to get pretty messy below with a possible test of the 172-175 area again, that said it will probably open a great opportunity if it occurs.
On the options front, it looks like they are roughly pricing in an 7$ to 8$ move at some point…it is tempting to aim for the $198 or so ( look at the low volume area there on the profile as resistance ). They really need to do something pretty good to please wall street.
Intel got hit last week and that may or may not be a sign of things to come, we’ll see. IBM sucked last year, Intel didn’t, will the roles reverse in the short-term?
On the broader scheme i am watching the S&P 1820 level for any heavy selling, if that goes, i am expecting a rip down to 1750-1775 before the market attempts to stabilize and take out the 2013 close….
Futures right now are up pretty good in the early hours, so they could go for a retest of that 1846 level on the /ES and the /NQ is looking ok aswell. IBM maybe a catalyst to push the market through..if that level breaks then we should have a nice rally for a few days…
I am not big on earnings plays, i used to try and figure them out but in the end, they are a crapshoot so please do not follow the advice above unless you like setting fire to your money 🙂 . Occasionally a real gem comes up but this isn’t one of those trades.
What i do like about IBM options though ( and why i am in the trade ) is that when the stock does move, the delta is nice and the contracts are relatively cheap so you get a reasonably good bang for buck – assuming you get the trade right 😉
Do you ever trade IBM for the short-term? Are you a fundamental long-term investor or a short-term trader? If you trade earnings, do you prefer to wait until the report is done or try and get ahead of the herd?