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IBM signals downtrend as Goldman Sachs cautions investors

On April 24 th , we had announced our intention to take a short position in the stock of software giant International Business Machines (NYSE: IBM), by purchasing a put option. The stock was trading at about $160 at that time.

A week later, the stock had fallen to $150 levels. Now, in the past two trading sessions, the stock has climbed back to about $154. Still, we have a bearish view of the stock and anticipate the uptrend to be short-lived due to reasons mentioned below.

Last Friday, investment banking giant Goldman Sachs cautioned investors from being too dependent on tech stocks.

Goldman Sachs pointed out that over-reliance on FAAMG stocks (Facebook, Amazon, Apple, Microsoft, and Google) has resulted in the creation of complex positions that make it difficult to assess risk. The report also raised concerns about the profitability of tech companies. IBM, which did not fare well in the last quarter, is expected to be hit by the report.


Following the poor first-quarter results, Warren Buffett’s Berkshire Hathaway reduced its holdings in the company by as much as 20.5% to 64.6 million shares. Notably, IBM’s own pension fund reduced their stake in the parent company. According to the recent 13-F filing, the pension fund owns only 12,451 shares, compared with previous holding of 82,802 shares.

Finally, an investment research firm Vetr downgraded the stock recently to a “strong sell” rating, from the prior “sell” rating. Vetr had given a target price of $152.23 for the stock of IBM. Since the stock trades above the target price issued by the investment research firm, we can expect profit-booking to begin soon. Thus, considering the Goldman Sachs report, dilution of stake by pension fund and “strong sell” rating given by Vetr, we expect the stock to remain range bound with bearish bias.

The price chart indicates resistance for the stock at 157.10. The RSI oscillator indicates an overbought scenario. Thus, we can expect a decline in the stock price.

IBM Stock Price: June 14th 2017

IBM Stock Price: June 14th 2017

We would like to trade the probable down trend by investing in a put option. In such a case, the contract should be valid for a week. Additionally, we wish to enter when the stock of IBM trades near $155 in the NYSE.

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