The Stock
International Business Machines Corp.
Recent price $122.11 (U.S.)
Trend The stock market moves to many different currents, but none is currently driving investor equity like the changing value of the U.S. dollar. Whether rising commodity prices, the ascent of bullion to the $1,000 mantle, or the international capital flows that underpin the bond market - all are feedback to the bearish trend of the greenback. The dollar has been losing ground since the beginning of March, a notable juxtaposition to the stock market rally dating from the same origin. Investors should pay heed.
While the allure of the materials sector, specifically hard commodities and precious metals, gives the Toronto Stock Exchange a glimmering shine in this monetary environment, a falling dollar also has a positive spin for U.S. multinational corporations that stand to benefit. Many of these multinationals generate a significant portion of their revenue from overseas operations, making exchange rate changes a practical concern for the company's bottom line. The best performing Dow Jones Industrial stock in the third quarter is Caterpillar Inc. , outpacing the S&P 500 by 37 per cent, but other multinational stocks like General Electric Co. , E.I DuPont de Nemours & Co. DD-N, and 3M Company are rallying as investors recognize the favourable foreign exchange dynamic for these companies. Both GE and Coca-Cola , another global brand icon, traded unusually high volume last week.
The Trade Stock Trends has been bullish on technology stocks since June, and as the summer comes to a close they remain leading performers. Big Blue, International Business Machines Corp., scaled to a 52-week high last week. About two-thirds of IBM's revenue is generated overseas, so the company's performance is highly tuned to the strength of global markets. The technical picture for the stock is encouraging, too. After stumbling to the $100 level in mid-July IBM's stock rallied back along its bullish trend, but traded in a range for the last two months. Last week's advance above the summer's high at the $120 level opens the door for a fourth quarter rally. Investors can trade this bullish stock on improving trading volume, sector strength, and the bearish U.S. dollar.
The Upside IBM's share price peaked at $130 in the summer of 2008 before last year's calamitous bear market tailspin that sent stocks, big and small, tumbling. IBM bottomed at $69.50 last November and has climbed back to the lower end of its summer 2008 valuation. Investors entering this trade now have a modest 7 per cent gain as a minimum objective. The stock's all-time high of $139.19, achieved at the peak of the tech bull market 10 years ago, could be attainable during this bull market if the current market conditions continue to bring market participants back into equity markets. As the Dow's only plus-$100 stock, demand for IBM is driven primarily by expanding institutional buying.
The Downside The 13-week moving average trend line currently puts support for IBM at $115, but the Stock Trends Weak Bullish indicator would not be triggered unless the share price drops to $111. Investors buying IBM now can exit if the stock drops 8 per cent - 10 per cent.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca .