IBM's stock was absolutely pummeled on Tuesday, with the stock plunging 5 percent after the company reported yet another disappointing quarter of shrinking revenue growth and a brutal cut to its full-year earnings forecast. Jim Cramer knows the company is trying to turn itself around, but is that even possible with such negative sentiment on Wall Street?
"It looks like Big Blue has got the blues. From what I can see, IBM's new, faster-growing businesses, like the cloud, big data and cognitive analytics, just cannot offset the hideous declines in their older legacy divisions," the "Mad Money" host said.
After this quarter, it was pretty clear to Cramer that IBM deserves to go lower. Even the company's 3.6 percent yield can't protect a shareholder when the stock gets obliterated every time earnings season rolls around.
So, now the question is, how low can IBM go before it finds a bottom?
To find out Cramer spoke with Bruce Kamich, a chartered market technician, professor at Baruch College and colleague of Cramer's at RealMoney.com.
Kamich first took a look the long-term action of IBM going back to 2006. He found that it had a lengthy rally starting in 2009, but then topped out in 2012 and 2013. Since then, the stock has been stuck in a multiyear downtrend.
However, Cramer has recently heard some investors argue that given IBM's two previous declines to the low $140s, the stock could have made a triple bottom on Tuesday. Kamich thinks this is too premature to call a triple bottom, and for that to be the case, the stock would need to rally back sharply above $152 to confirm that pattern.
That doesn't seem very likely, considering that the stock was trading at $149 even before IBM's lousy results were reported.
So, how low can it go?
Looking at IBM's weekly chart going back to 2011, Kamich pointed out that the 200-day moving average had already been on a downtrend for the past year, along with its on-balance-volume line. And if both of these technical indicators are getting uglier, that suggested to him that the stock isn't finished going lower.
To find the downside, Kamich looked at the weekly chart going back to 2001 to find IBM's real downside. Between 2008 and 2010 IBM ran against a ceiling of resistance at $125. So, that could be a possible price target for the stock.
However, Kamich was not sure that the $125 floor of support will hold. To confirm, he looked at the point-and-figure chart. While it might look more like a tic-tac-toe game to some, it is a way of looking at the movement in a stock without accounting for time. The purpose is to measure large price movements to find critical support and resistance levels.
Based on the way IBM has repealed its previous rally, Kamich thinks that the next leg lower could take the stock to $116. That was because years ago, IBM rallied almost in a straight line to $148 from $116.
"My view? Even though I wouldn't go near IBM after what the company told us last night, I think it is possible Kamich might be getting excessively bearish," Cramer said.
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In Cramer's perspective, even though the sales and earnings estimates are not ideal, the company still pays a large and safe dividend. At some point, the negatives would get priced into the stock and the dividend would offer protection.
However, given that betting against IBM seems to be the right move for years now, Cramer wouldn't be surprised if Kamich is right. Ultimately, this stock is just too dangerous to own right now for Cramer, at least until there are some signs of stabilization.