Don’t get too wrapped up in following the price trend in IBM after the close tonight as the blue chip company has a tendency to reverse gains or losses from the after-hours to the next day’s close following an earnings event.
IBM favors a long-term reversal pattern in its session-to-session performance, crossing narrower next-day percentage closing levels following after-hours earnings events in 12 of the last 20 quarters. In the near-term, the stock favors narrowing as well, cutting back or reversing its evening performance in next-day trade in three of the last four quarters.
MT Pro subscribers can listen to the video alert posted for today to get Steve Hill’s detailed commentary on IBM (plus a recap of Intel’s earnings event) in advance of the earnings news due out after the bell tonight.
Basically, consider a short if the stock rises in the after-hours and a long if it falls. Either way, it’s likely to reverse the trend from the after-hours to the close tomorrow. Set a stop loss at no more than a 1% loss on the trade.
Take a look at the historical reaction data we’ve collected over the past few years and you’ll get a sense of the trend.
On April 20, 2009, the stock fell 1.3% after an earnings beat, revenue
miss and reaffirmed guidance. Shares rebounded to gain 1.8% the next
day.
On Jan. 20, 2009, IBM advanced 4.2% in evening trade after reporting
better-than-expected results and guidance. The stock went even higher
the next day, rising 11.5% in the Jan. 21 regular session.
On Oct. 16, 2008, IBM advanced 2.3% in after-hours action after besting
earnings expectations. The gain evaporated the next day as IBM closed
the Oct. 17 regular session down 0.8%.
On July 17, 2008, IBM declined 0.5% in after-hours trade after topping
Q2 expectations. The stock reversed course the next day, and IBM
closed with a 2.6% gain on July 18.
On April 16, 2008, IBM gained 2.7% in after-hours trade after beating
Q1 expectations. That upside was cut back in the April 17 regular
session, with IBM ending the day up a slimmer 2.1%.
On Jan. 14, 2008, IBM pre-announced better-than-expected Q4 results
in pre-market trade and the stock advanced 8% before the bell. It
edged back from that upside in the following regular session, holding a
5.4% rise into the Jan. 14 closing bell.
A number of big-name tech and retail companies are set to report earnings results this week including The Home Depot Inc. (HD), Hewlett-Packard Company (HPQ), and Target Corp. (TGT). Investors will also be paying close attention to housing starts, which will be released on Tuesday.
Investors will continue to hear earnings results from a number of companies this week including Starbucks (SBUX) and Motorola (MOT), just to name a few. On Wednesday, investors will also get their first peak at how well the economy fared in the first-quarter, when advanced gross domestic product is released.
Stocks managed to close out last week higher after sinking below their November lows on concerns about the weakening economy and increasing unemployment. The financial sector managed to make some positive headway after Citigroup (C) reassured investors that the first two months of 2009 were strong.
