It is not often that you see the market pushing all-time highs while the most heavily-weighted component in the Dow Jones industrial Average is churning below its 200-day moving average. But that is exactly the current situation with IBM, by far the Dow’s most heavily-weighted stock.
Perhaps of even more significance is that the 200-day moving average for Big Blue is now declining, and has been acting as resistance to price for over a month, including that earnings pop. Just as my analysis of Pulte Homes on my video market recap for Monday, the case with Big Blue is that it must immediately improve or the presumption is one of a major bullish to bearish reversal, spanning several months or even quarters.
That may sound extreme, but we are talking about the 200-day moving average, after all, and not some of the shorter-term reference points which are notorious for zig-zagging. When the 200-day smooths out and turns down after a sustained, multi-year run, which Big Blue has been on since the summer 2010 breakout we anticipated back then, it is a development which commands your attention.
On the updated daily chart, you can see the sloppy, sideways channel. Again, keep in mind this is forming after a steep uptrend, which is not what bulls want to see (wild price swings and sloppy patterns). Whether or not further weakness in Big Blue spreads to the rest of the tape remains to be seen, but I am looking at this as a short idea below $195, playing for the big breakdown, with a buy-cover stop-loss on a close above $202.
____________________________________________
