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The MAGS and chip stocks were strong enough to push up higher Wednesday and we have the Trump-Xi meeting this week — is volatility ahead? Meanwhile, the latest inflation data was bad but the market don’t care… yet [tap to join us for the Daily Profit Plan]!
I stumbled across something in International Business Machines (IBM) recently that stopped me in my tracks. The market has been treating this stock like absolute garbage — down about 34% from its highs in early February.
But when I pulled up the chart and started working through the technicals, I found myself looking at one of those rare moments where everything lines up at once. If the market shifts out of high-flying growth sectors and rotates into defensive blue chips, IBM could benefit from a renewed bid as investors seek stability and value.
IBM is sitting right around $210 Wednesday morning, which happens to be the exact resistance level from the 2013 highs. That old resistance is now acting as support. And it gets better — we’re also touching the 200-day moving average on the weekly chart.
When multi-year support meets a major moving average after a significant correction, it’s worth paying attention.
If IBM finds a bottom here and starts to rebound, there’s the additional potential to fill the chart gap back up to the $230-$250 zone, offering a substantial upside path for patient holders.
The Technical and Fundamental Case
From a fundamental perspective, this stock looks deeply undervalued. IBM doesn’t appear expensive — trading around 19 times earnings with discounted cash flow models showing significant potential upside even if the market remains unconvinced for now.
But fundamentals don’t drive short-term moves — technicals do. And right now, the technical setup is what interests me most. There’s a gap from $230 to $250 that price could fill on any recovery, and if IBM stabilizes above the $200-$210 zone, the path toward that gap becomes far more realistic. It’s also notable that several analysts have recently upgraded IBM with price targets ranging from $231 up to nearly $300 — far above current trading levels.
The Trade Structure That Makes Sense
I’m not interested in ratio spreads or unlimited risk strategies here. Given the volatility and potential for further downside, a defined-risk bull call spread is preferred over aggressive or complex structures like ratio spreads, minimizing risk if support fails.
I’m buying the $205 call and selling the $210 call in July expiration — 65 days out — for a $2.40 debit. This structure gives me $2.60 in profit potential against my $2.40 risk, creating a 108% return on risk if IBM stays above $210 by expiration.
I’m setting this up as a pending order, willing to wait for price to potentially dip to $200 before entering, which would provide maximum asymmetry. IBM bounced a little on Wednesday so wait for a dip if you’re looking to enter.
Sample Bull Call Spread: Buy the July $205/$210 call spread; cost is around $2.40. If IBM closes above $210 by expiration, you could more than double your risked capital with a defined-risk approach.
While there are more complex strategies such as deep out-of-the-money (OTM) ratio spreads, the risk/reward often isn’t attractive — keeping trade structure tight and risk-defined is the recommended approach especially when the chart has not yet confirmed an upward reversal.
I’ll see you in the markets.
Chris Pulver
Chris Pulver TradingÂ
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