Testing the Dip: IBM's 2025 Recovery Play
IBM dropped 26 points in one week after a massive rally. Was this violent selloff a warning sign or a buying opportunity? A case study in reading post-crash ...
The Setup
What the world looked like at entry
Executive Summary
By late July 2025, IBM had just experienced a jarring reversal. After rallying from $249 to $292 over the prior 12 weeks, the stock collapsed in a single week—dropping 26 points to $259 on volume that spiked 183% above average. The selloff was violent and raised a critical question: was this the start of something worse, or an opportunity?
The company's fundamentals hadn't changed dramatically. IBM's hybrid cloud strategy was progressing, AI integration (particularly watsonx) was gaining traction, and enterprise spending remained stable. The selloff appeared to be profit-taking after a strong run rather than a fundamental breakdown.
This case study follows a trade that entered after the crash, testing whether the $252 support level would hold and the uptrend could resume.
MACRO REGIME
- Enterprise IT spending remained resilient
- AI adoption was accelerating across industries
- Interest rates had stabilized, supporting tech valuations
- No major macro shocks on the immediate horizon
COMPANY SETUP
- IBM had rallied from $249 to $292 (+17%) from May to late June
- A violent 26-point drop in late July (week of July 21) on 46M volume
- The selloff took the stock back to $259—erasing much of the rally
- Support at $252 (the May low) was being tested
SECTOR MOMENTUM
- Enterprise software and cloud names were performing well
- AI-related names seeing strong interest
- Legacy tech names gaining from AI integration narratives
SENTIMENT
- Nervous after the sharp reversal
- Volume spike suggested capitulation selling
- But fundamentals hadn't deteriorated
- $252 support level was a clear line in the sand
Entry Point
The thesis and the position
A trader might have entered here seeing: - Sharp selloff creating a potential entry after a strong rally - $252 support level providing a clear stop loss point - Fundamentals unchanged despite the price action - High-volume selloff could signal exhaustion The concern: Was this profit-taking after a rally, or the start of a deeper correction? Could the stock recover, or would it continue lower?
Before continuing: Consider what you would have done. Would you have taken this entry? What risks would you have been most concerned about?
The Journey
From entry to exit
Jul 28, 2025
Entry at $260.30 after sharp selloff
Entry — Starting point
Aug 4, 2025
Further decline to $242.27
Weakness — Testing conviction
Aug 11, 2025
Low at $233.36, close at $239.72
Trough — -10% from entry
Aug 18-25, 2025
Stabilization around $242-243
Base building — Volume declining
Sep 1-8, 2025
Rally resumes, reaches $253-266
Recovery — Trend turning
Sep 15, 2025
Surge to $284.31 on 34M volume
Breakout — +9% from entry
Sep 22, 2025
Peak at $293.32, close at $288.37
Peak — +11% from entry
+10.8% from entryOct 6, 2025
Pullback to $277.82
Correction — Giving back some gains
Oct 13, 2025
Recovery to $281.28
Exit — +8% from entry
The Test of Conviction (Late July - Early August)
The trade began poorly. Despite entering after a sharp selloff, IBM continued lower—dropping from $260 to $242 in the first two weeks. Volume remained elevated (28-30M shares), suggesting continued selling pressure. The thesis was being tested immediately.
The Low and Base Building (Mid-August)
August 11 marked the low at $233.36—a gut-wrenching 10% below entry. But crucially, this held above the critical $252 support from the lead-in (which had briefly been breached). Over the next two weeks, the stock stabilized in the $239-243 range as volume declined—a sign that selling pressure was exhausting.
The Recovery Rally (September)
September brought the turnaround. The stock climbed from $243 to $284 in just four weeks—a 17% surge. Volume picked up on the advance, with 34M shares trading on the week of the breakout. The uptrend was clearly resuming.
Peak and Consolidation (Late September - October)
IBM touched $293.32 in late September—up 11% from entry and nearly recovering to the prior highs. A pullback to $277 in early October was uncomfortable, but the stock recovered to $281 by exit. The trade ended with solid gains despite the rocky start.
Price Action
The trade in chart form
Results
The final accounting
During the same period:
S&P 500 (SPY): Up approximately 5%
Tech Sector (XLK): Up approximately 6%
IBM vs. S&P 500: Outperformed by ~3%
Solid outperformance, though achieved through significant volatility.
Lessons
What the trade revealed
Selloffs after rallies can be opportunities
The violent late-July drop wiped out gains, but created a better entry for patient buyers.
Early pain doesn't mean wrong thesis
The trade went 10% against before working. Entry timing is often imperfect even when the direction is correct.
Volume tells the story
High volume on the selloff, declining volume during the base, and rising volume on the recovery confirmed each phase.
Define your stop before entry
Knowing that $252 was the key support level provided a clear exit point if the thesis failed.
Staged entries reduce timing risk
Entering 1/3 at $260, 1/3 at $245, and 1/3 at $235 would have produced a much better average cost.
Take profits at resistance
The $290+ area was the prior peak. Scaling out there would have captured more of the move.