IBM: Weekly Bearish Engulfment

Well it's the end of the week and time to look and see what patterns developed on the weekly charts.

Above is a 3 year weekly chart of IBM. IBM reported very good earnings but instead of moving higher the stock gapped down today forming a weekly bearish engulfment. Notice how IBM tends to reverse back down when it gets close to the $100 level. In 2004 and 2005 IBM tested this level, formed a bearish weekly engulfment and then sold off into July. The same thing is happening now. We have an overextended rally, a bearish engulfment forms with heavy volume in the face of good earnings, and the stock is at a key resistance level.

IBM is still holding above its 50 day moving average. I think if the stock can post 2 closes below this average, the stock will then decline like it did in the past. Minimum downside objective is $88.