I believe IBM has good opportunity for long-term investors because of the ground breaking research it is involved in that could revolutionize mobile computing. Even though I like the company long term, I believe short term, a bearish income strategy may fare well for those who are interested.
Imagine if you could fold up your tablet and put it in your pocket. What if you had an electronic display that could be taken out of your pocket and unfolded into a larger screen? These ideas may be coming soon if IBM has its druthers.
It announced a breakthrough technology that enables manufacturers to create silicon-based electronics on flexible plastic supporting material. What is really important is that it can be done cost effectively. It is not surprising that some transistor performance degradations may take place, but the process can be done at room temperature.
This has been tried before, what makes IBM's "breakthrough" so newsworthy?
There have been a couple attempts at flexible electronic creation but the materials used had problems like:
- Low resistance contact
- Unreliable Insulation to maintain minimal loss of power
The approaches have been foreign in their conventional approach or take high temperature steps in the manufacturing process. So how does IBM approach it?
IBM's approach involves what has been called: "kerfless" removal of the silicon. This manufacturing process involves the production of very thin wafers of silicon from a crystal ingot with very little material wasted. The conventional wafering method involves a wire saw to cut into the ingot to make the separate wafers. The material lost in the saw cutting process is called the "kerf." IBM takes the fractured device where the silicon substrate is peeled off and then the devices are transferred to plastic flexible tape. Gate lengths tend to be less than 30nm with a pitch of 100nm.
Long-term ramifications for this technology could change the face of mobile products we use today. When applicable, anything from phones to tablets may be able to be stored in our pockets or purses when not being used. The research and application stages are not yet in touch with each other, but IBM sits well to profit from this technology when they do.
Since the gap down in October, it looks like IBM is consolidating. It appears to be forming a symmetrical triangular pattern. Normally, this is a bullish continuation pattern and sometimes can be interpreted as a reversal pattern. Here it would look like the latter. Is it reversing and will the stock now move up? I do observe a positive divergence in the RSI indicator that would support a reversal theory. Coming to the upper Bollinger Band, I would expect a possible retraction from its present position before this takes place. I am also interested in knowing if the stock will use the 50 day MA as resistance. The MACD MAs are moving in a positive way and I really would like to see them get into bullish territory before I am convinced the stock is making a reversal.
A Short-Term Income Play
The consolidating phase looks like a typical symmetrical triangular pattern. The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. The stock is presently trading at 194.07 and at this point I would expect a pullback.
- Buy a January 2013 put with a strike of '195' (priced at $4.15)
- Sell a January 2013 put with a strike of '190' (priced at $2.16)
- Net Debit to Start: $1.99
- Maximum Profit: $3.01
- Maximum Risk: net debit
- Maximum Length of Trade: 1 month
Reasoning behind the Trade
- The stock is still consolidating at the top of Bollinger Bands and I expect a pullback.
- Weak overall market performance contributes to the pullback.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.