A 26-year-old trend line suggests IBM has more upside from here, technician says

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One of the top performers on the Dow is about to report earnings.

IBM is the second-best gainer on the blue-chip index in 2019, adding 28% and roughly $28 billion to its valuations which equals the total market cap of Twitter.

Its strong run this year marks a turnaround after a steep sell-off in the fourth quarter. However, the stock managed to hold a multidecade trend line even in the grips of that decline, a move one chart watcher sees as a technical feat.

“You have a trend line going back to 1993 and it’s held this and I like that a lot,” said Bill Baruch, president of Blue Line Futures, on CNBC’s “Trading Nation” on Tuesday. “On the fundamental side, you’ve got a dividend yield of more than 4.3% and a [price-earnings ratio] of 12. This is a good longer-term investment.”

Its shorter-term moves also indicate even more strength for the stock, Baruch said.

“You’ve got the 50-day moving average crossing out above the 200, [a ‘golden cross’ that points to a bullish trend]. The ADX, which signals whether a stock is trending, is picking up and I think those two combined are going to bring some momentum,” he said.

“Ultimately, I like this stock and I think there’s more upside. What I’m looking for, there’s a trend line going back to 2012 and this market if it tests that, it’s going to be testing into the thick of last year’s highs. $160 is what I’m targeting to the upside here,” Baruch said.

Michael Binger, president of Gradient Investments, is more cautious on the stock given its stagnating top-line growth.

“We would not be buyers of IBM here right now,” Binger said. “To make money in tech stocks, you really need to find organic growth and companies that can grow that growth at pretty fast rates. IBM is not one of those companies. In fact, they need to buy their growth and Red Hat is the latest example of that.”

IBM’s $34 billion acquisition of open-source cloud software developer Red Hat has yet to close. It announced the deal in October. IBM is expected to post a 3% sales decline for its first quarter when it reports after the bell Tuesday.

“Yes, it’s a cheap stock. Yes, it has a good dividend yield. But, I just don’t see long-term upside and I think it’s a stock you tread water in,” Binger said

Disclosure: Gradient Investments holds IBM.

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