Research In Motion (RIMM), the makers of Blackberry smartphones, arguably has not found much love with Wall Street. The Street’s favourite still remains to be Apple (AAPL).
While Apple’s stock price has almost doubled since April 2011, RIMM has been “bleeding like a pig” and is down by 72%. In fact, RIMM is down 90% from its peak in 2008.
But is there finally some signs that there may be light at the end of the tunnel for RIMM? Is it now a good time to load up on this hated tech stock?
Note: This article is discussed in greater detail in the video below. We highly recommend you watch it.
In 2007, RIMM had 44% share of the smartphone market. When Apple came out with the iPhone, it destroyed the sales of RIMM – i.e. the sales of Blackberry – and now its share of the smartphone market is 16%.
When RIMM was dominating the smartphone market its market capitalisation was $60 billion. Now RIMM is valued by the market at $7 billion.
However, as shown in the above video, RIMM still has $1.5 billion in cash, more than 20% of the market value, and has twice assets versus debts.
Now let’s examine RIMM from a technical perspective.
We can see from the weekly chart of RIMM, we are starting to form a double bottom pattern.
A double bottom is a bullish reversal pattern and is formed when a market that has been trending down forms one bottom, but then it fails to make a second bottom that is lower than its first one. This is an initial sign that the downward trend may be weakening, or about to come to an end.
Confirmation of the double bottom will come when RIMM closes above $18, which is the middle part of the “W” or double bottom pattern.
Momentum on the weekly chart is also gradually shifting from negative to positive.
We also have positive divergences on both the weekly and the daily charts of RIMM. A positive divergence is formed when a stock or market is making lower lows (as shown in the above video) but the indicator underneath (usually a momentum-based indicator such as the Relative Strength Index (RSI)) makes higher lows.
Divergences can be early useful signals that a trend in a particular direction is weakening.
In the case of a stock like RIMM that has been in a downward trend for quite a long period of time, this can be an early sign of gathering strength in the stock.
However, the volume behind the buying is still not particularly conclusive as yet.
On the daily charts of RIMM, we can see that it is inside a channel, and the price is currently hugging the top part of this channel – which is acting as resistance (see above video).
It is quite risky, in my view, to buy RIMM right now. If sellers take control they could push RIMM down to the bottom part of this channel – i.e. from its current price at $14 down to perhaps $11.
I would like to see RIMM closing above its resistance trendline (slightly above $14.80) and then for it to re-test the trendline, before I consider buying it. Markets tend to re-test their previous support or resistance levels (in this case known as “kissing the trendline goodbye”) before they continue to new price levels.
Once RIMM has shown some positive signs of strength above $14.80, its next targets are at its most recent previous highs at $18, then $20 which is a psychological round number, and then $24.
Research In Motion has some good upside potential, and it is worth keeping an eye on this stock for the coming weeks.
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