Watson Takes on the Vampire Squid

Goldman Sachs reported earnings Tuesday morning and IBM is expected to do so after the bell. These events can be catalysts that adjust a stock price and the initial reaction to Goldman’s earnings beat has the stock moving higher in premarket trading, but well off the highs immediately after the announcement. But looking at the longer term weekly charts which is a better place to put your money?

Goldman Sachs, ticker: $GS

The Vampire Squid has been trending lower since the beginning of the year after touching the 18 month down trending resistance line. Monday’s activity starts the weekly candle outside of the Bollinger bands and below the 20, 50, 100 and 200 week Simple Moving Averages (SMA’s). If the premarket activity holds up then it will transform into a hammer. But the week is just beginning and this chart has some definite trends in addition to the previously noted price trend. The SMA’s are relatively flat and rolling lower. The Moving Average Convergence Divergence (MACD) indicator is growing more negative and the Relative Strength Index (RSI) is trending lower. These indicators all suggest lower prices in the future. The price as of Monday’s close is barely within the lower Bollinger band, but the bands are expanding to allow for a run. This stock looks sick, with support at 147 and then 136 below that. Place a stop on a short trade a little above the 157.14 Fibonacci level and do not consider it as a long trade until it is over 162 unless you have a very short term horizon. As a trade idea the July 145 by 135 put spread closed at 2.00 on Monday and looks to open cheaper today. Buying it and using the stock stop price above can create a very attractive reward to risk ratio.

IBM, ticker: $IBM

Watson has lifted IBM to new highs from a year long channel. There has been a clear uptrend since the November 2008 lows at 56.60 that took about a year to get to 129 and rested before the latest move up. After the recent brief pullback it is ready to test the highs again. The SMA’s are all sloping steeply higher, the RSI is solidly hugging the 70 technically overbought level, but is not extreme. If it can get over the previous high at 167.72 then it has a measured move to 191.59 and then there is the Fibonacci extension at 193.94 above that. Finally a measured move comparable to the move from November 2008 to 129.09 would create a target of 201.58. October 170 by 200 call spreads in IBM close at $6.53 as a cheap way to play the upside with a reward to risk ratio of 4.59:1 without a stop. Put a stop in place at the 20 week SMA and the ratio gets even better.

Now you know how I will be looking at these names. So stepping back from the very short term view how would you play these names? Trade’m well.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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