This surging Dow stock has more room to run: Trader

One of the best-performing Dow stocks of 2016 has more room to run, says one savvy trader.

Andrew Keene of AlphaShark sees a big rally in the charts for IBM, a stock that's already up more than 12 percent year to date. The computer hardware mainstay hit a year-to-date high of $163.53 in August, but has since dropped slightly and stayed under $160 since September.

But looking at a daily chart of IBM, Keene sees the stock moving toward its 150-day moving average, in line with IBM's end-of-June low that later saw the stock catapulting upward during July.

How high can IBM move? On a weekly chart of IBM, Keene also sees the stock close to hitting its 150-week moving average. As Keene sees IBM making a move up, he believes that the stock can actually retest its 50-week moving average around $165, a level that allows him to set up a trade.

"We have a measured move target to the $165 level, and that's where I think IBM is heading by November," said Keene on CNBC's "Trading Nation."

To play for the move higher, Keene purchased the November 160/165 call spread for $1.10. This is a bet that IBM will rise above $161.10 by November expiration.

"On this trade, if it goes to my measured move target of $165 by expiration, I can get 500 percent return," said Keene. "That $110 will turn into $500. If it sells off, the most I'm out is that $110."

IBM has dropped about 5.5 percent since hitting its 2016 highs in August. Keene is betting that the stock will rise more than 7 percent for his trade following its earnings report next Monday.


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Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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