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.
What Was Observable Before Entry
Pre-Trade Environment
What Was Observable Before Entry (May - July 2025)
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-Specific 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
Thesis Formation
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?
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Entry Point
What Was Observable at Entry
12-month price action before entry showing the May-July rally and the sharp late-July reversal.
Entry Details
Date: July 28, 2025
Price: $260.30
Context: Entering after a 26-point selloff, betting on support holding
The Thesis
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?
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The Journey
Key Events
Date
Event
Category
Stock Reaction
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
Oct 6, 2025
Pullback to $277.82
Correction
Giving back some gains
Oct 13, 2025
Recovery to $281.28
Exit
+8% from entry
How It Unfolded
Phase 1: 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.
Phase 2: 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.
Phase 3: 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.
Phase 4: 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.
Exit
Date: October 13, 2025
Price: $281.28
Context: Exiting with +8% gain after volatile journey
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Charts
Charts
Price Chart with Entry/Exit
Weekly candlestick chart showing entry at $260.30 (green) and exit at $281.28 (blue). Note the August low and September recovery.
Relative Performance vs. Benchmarks
IBM outperformed the S&P 500 during this period despite early weakness.
Drawdown from Peak
The 10% drawdown from entry tested conviction before the recovery.
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Results
Performance Analysis
Absolute Returns
Metric
Value
Entry Price
$260.30
Exit Price
$281.28
Gross Return
+8.1%
Holding Period
~11 weeks
Max Price (Close)
$288.37
Min Price (Close)
$239.72
Max Drawdown from Entry
-10.3%
Peak Unrealized Gain
+10.8%
Relative Performance
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.
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Lessons
What Worked
What Worked
Buying after the crash: Entering after the 26-point selloff caught the stock near a low, even though it went lower initially.
Holding through the drawdown: The 10% decline was painful, but holding allowed participation in the recovery.
Volume as a guide: The high-volume selloff in late July suggested capitulation. Declining volume during the base-building phase confirmed selling exhaustion.
Support held (eventually): While the stock briefly broke below $252, it found buyers and recovered—validating the support thesis.
What Didn't Work
What Didn't Work
Immediate pain after entry: Buying at $260 and watching it fall to $233 is psychologically difficult. A staged entry would have averaged in at better prices.
No scale-out at the peak: The $288-293 area was the high. Taking partial profits there would have locked in more gains.
10% drawdown required significant conviction: Without strong conviction in the thesis, this trade could have been stopped out at the lows.
Key Takeaways
Lessons and Takeaways
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.
Sources
Sources
Yahoo Finance historical data for IBM
IBM quarterly earnings reports (2025)
Enterprise IT spending surveys
Disclosure: This case study is for educational purposes only and does not constitute investment advice. Past performance does not guarantee future results. All investments carry risk of loss.
