Trade Recommendation: Ride Reversing GPC and IBM

The S&P 500 Index (SPX) has been succumbing to selling pressure in the last four trading days. While the gap created on December 18 was filled, a bearish divergence was spotted on the daily chart. On top of that, SPX is still in overbought territory. We might see the index take a significant dip in the short term before it can resume its ascent.

As technical indicators show some signs of bearishness, let’s look at stocks with considerable profit potentials while offering limited risks.

GPC – Genuine Parts Company

Genuine Parts Company (GPC) is a distributor of automotive and industrial replacement parts, office supplies, and electronic materials. The company operates in the US, Mexico, and Canada with close to 40,000 employees.

GPC has been in a downtrend since December 2014, after hitting a five-year high of 109. Bears sent the stock tumbling down to 76.5 in January 2016 where it established critical support. While the stock has rallied from the support level, it failed to generate a clear sign of reversal until recently.

Technical analysis reveal that the stock is creating a bullish reversal pattern on the weekly chart. If breakout turns out to be a success, we can see the stock pierce its five-year high to our target of 110. First, it must breach resistance at 96 with a volume of 2.665 million on the daily chart. The stock is far from overbought territory, and RSI seemed to have established support at 54. It appears that breakout and reversal are on the horizon.

The strategy is to buy breakout at 96 with the required volume. We have support at 92 and 88.

The stock will encounter resistance at 100 before it can reach our target of 110.

Weekly GPC Chart

Monthly GPC Chart

As of December 22, 2017, the Genuine Parts Company stock closed at 95.11.

Summary of Strategy

Buy: breakout at 96 with volume of 2.665 million on the daily chart

Support: 92 and 88

Target: 110

Stop: A close below 88 negates this trade call.

 

IBM – International Business Machines Corporation

International Business Machines Corporation (IBM) is an American multinational tech corporation operating in more than 170 countries. The company started as the primary supplier of mainframe computers, but over the years, IBM diversified and included software and services in its portfolio.

Bears have controlled IBM since it failed to take out resistance at 182 in February. The stock lost almost a quarter of its value before establishing support at 139 in August. IBM rallied, and generated an important higher low on November at 146.21. In the process, the stock created a bullish pattern that relies on breaching resistance of 162 to reverse its bearish trend.

The strategy is to buy as close to the immediate support of150 as possible to limit risks and maximize returns. Otherwise, buy the breakout at 162 with at least 11 million of volume on the daily chart. After 150, next reliable support is 145. Target is resistance at 182.

Daily IBM Chart

Weekly IBM Chart

As of December 22, 2017, the International Business Machines Corporation stock closed at 152.50.

Summary of Strategy

Buy: as close to 150 as possible OR breakout at 162 with 11 million of volume on the daily chart

Support: 150 and 145

Target: 182

Stop: A close below 139.5 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

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Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.