Tuesday, 8 January 2013

RIMM: A Great Risk to Reward Trade at Current Price Levels

A picture is worth a thousand words, so we will start off with RIMM's daily and weekly charts:

We see from these charts that three important technical events have taken place:

1. On the daily chart, after a couple of unsuccessful attempts to make a sustained rise above its 50-day MA throughout the summer, RIMM broke through the barrier in October and has never looked back.

2. Also reviewing the daily chart, RIMM's 50-day MA has crossed its 200-day MA in December, another clearly bullish sign.

3. Finally, reviewing the weekly chart we see that after months of a sustained drop below the 50-week MA from $60 in early 2011 to under $7 mid-2012, the stock has finally surged above its 50-week MA in December, and after retesting that level from the pullback just before Christmas, bounced off that level and has continued upwards.

These three very important technical events show a short term and long term opportunity for investors at these prices levels. January is a traditionally bullish time for stocks, particularly those that were weak throughout the prior year and subject to tax loss selling. In addition, people are awaiting the BB10 release in a few weeks. These two events, combined with the bullish technical indicators above and the pullback from the overbought level in mid-December show that RIMM has a very strong chance of retesting those $14 highs in the next 1-2 weeks.

It gets really interesting after that for longer term holders of the stock. RIMM's future is heavily dependent upon BB10. If the new system doesn't sell for the company, RIMM could retest their lows. But it would have to break through the strong support points that the stock now has in the $10-$11 range first. BB10 will not flop overnight so RIMM holders would not have to worry about 20% or 30% losses in a day or two like they did when the stock had no support and a lot of bad sentiment was out on it like the past two years. Someone who was to buy the stock now would not be facing too deep of a loss should the system fail and they would be able to sell out with a minimal loss on the first signs of the support breaking down.

This is where the opportunity lies with relatively small amounts of risk. Should BB10 be a success and turn around the company, the sky is the limit for RIMM as shown on the weekly chart. The 200-week MA is over $40 - the next big technical hurdle. A successful BB10 could easily put RIMM in the $40 price range by the end of 2013. As violently as it moved down in 2011, the chart shows it has potential to move just as violently back up.

Given the bullish technical drivers and fundamental forces that are associated with the stock, RIMM makes a great risk-reward play for bullish holders of the stock with a very likely chance of price gains in the short term.

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