International Business Machines (IBM) shares dropped almost 1% after Warren Buffett expressed concern that he may have made a mistake buying a stake in IBM. Mr. Buffett currently owns an 8.6% stake in IBM and claims to have never sold a share. His comments are somewhat of a reversal to the general praise he provided in his annual letter over the weekend. He stated that IBM, American Express, Wells Fargo & Co. and Coca-Cola possess excellent businesses and are run by managers who are both talented and shareholder-oriented.
IBM also announced the acquisition of Resilient Systems, a security operations and incident response company. The purchase aims to improve IBM’s support on cyber-attacks and breaches to lost devices.
Despite the doubt he casted over his ownership of IBM shares, it is likely they are to remain a long-term holding of Berkshire Hathaway Inc.
Price action on the IBM daily chart shows the recent bearish trend has been firmly in place since the $176.30 high made last spring. Price made a key low on February 11th at $116.90. If the current consolidation continues to respect the 50-day SMA, we may eventually see price target the $135.50 region. Further upside may eventually target $139.59, which is the 38.2% Fibonacci retracement of the bearish drop from $117.30 to $116.90. If there is no rebound, we could see further pressure target the $126.50 area.
The Trade: Buy IBM at $130.25, with a stop loss at $128.50 and a take profit at $134.25. The Risk/Reward Ratio is 1:2