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It has been widely reported that Warren Buffett has been buying ‘Big Blue’, aka IBM, through his investment company, Berkshire Hathaway. He started buying in March this year and has spent around US$10.7 billion in accumulating 64 million shares, or about 5.4% of the company.
Could this mean it is now time to sell?
Buffett is certainly not a technical trader. He bases his plays on long-term potential and we can be sure this is a well-researched purchase. IBM is a significantly different company to the Big Blue of old and has positively re-engineered itself into a state-of-the-art corporate technology infrastructure provider.
Let’s start our analysis back in March, when Buffett began his foray:
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ProfitSource is a brilliant tool in many ways and I particularly like the facility that allows you to step back in time and re-create a perspective. The chart above shows an almost classic Wave Four retreat in March this year. ‘Almost’ perfect as the only detracting feature was an over-reactive Oscillator due to heavy selling just a few days previous.
Even if you were just a short-term player it would have been a good time to buy. Indeed I would have been only a short-term player because I would have been anticipating a pullback as the stock had already run very hard:
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And now to today:
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On Balance Volume indicates that volume has been climbing over the last nine months. The chart suggests there is some more upside for IBM and so you may be wondering if it is still a ‘buy’. Certainly Warren would like you to buy but my answer would be no.
Warren Buffett believes in Big Blue but he is also hoping that the public announcement will encourage other investors to buy the stock. He is ‘talking up his own book’ after he has bought it.
(What we really want to know, of course, is what Buffett and other institutional investors are buying now and the ProfitSource scanning functionality, including volume, OBV and Elliott Wave Fours etc. can be helpful in this regard.)
But back to Big Blue. The weekly chart suggests a price of around $200, which would represent a tidy short-term capital profit for Warren, in addition to the handsome dividends:
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But 18 months from now you might buy even cheaper than Warren:
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If the Wave Four down completes as shown, IBM could be as low as $140 and you and I and the ‘Oracle of Omaha’ could be in the market together, the closest many of us are likely to get to the octogenarian billionaire.
If I was holding IBM, I may not sell now but I would be watching closely as the ‘sweet spot’ should be at its max in the coming weeks or months.
Enjoy the ride
Tom Scollon
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