IBM Breaks Through Resistance

Yesterday it appeared International Business Machines (IBM, $94.82, up $3.16) was not going to join the market’s party as the stock was only up by a few nickles. The Dow was enjoying a triple-digit gain, yet IBM was stuck in neutral. Turns out, IBM was the party on Wednesday.

The stock started to rally after the President urged for the passage of an $820 billion stimulus package (which got approved last night) but what you may not know is that IBM’s CEO, Sam Palmisano, was called upon right before Obama spoke. In all, there were numerous business leaders there for the stimulus meeting but IBM could stand to benefit the most from an infrastructure standpoint.

The stock opened at $92.70, filled in some gaps, and was ready to test the $93 resistance level. I had mentioned this on Sunday night and again on Monday morning and said if we could clear this level, we were off to the races.

The February 95 calls (IBMBS, $2.60, up $1.20) could have been picked up for $1.00 on Monday morning and they are now up a stunning 160% from those entry levels. Even if you got in late and paid $1.25 for the calls, you have doubled your money.

Yeap. You’re next question is where is the stock headed? Well, first let’s put a stop of $2.25 OR if the stock falls below $93.50, sell the position. IBM made a steep drop in late September from $120 to under $90 in two weeks. So really, there is no resistance until $115-$120 but it doesn’t mean we are in blue-skies territory either.

I’d be happy with a run to $100 but IBM might do some consolidating here at these levels. Either way, the trade is a huge winner so protect your profits.

Rick Rouse
Rick@OptionsMentoring.com

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