A Monthly and Weekly Look at RIMM after Earnings Miss

Sep 25, 2009: 11:19 AM CST

With Research in Motion (RIMM) falling over 15% intraday after Thursday’s “earnings miss,” I thought it would be a good idea to step back the timeframe and take a look at the larger picture – mainly the Monthly and Weekly chart structure.

RIMM Large-Scale Monthly View:

A quick look shows us that price is recovering/retracing the large down-move that occurred in 2008.  Price has retraced just shy of 50% of the 2008 peak to the 2009 lows – in Fibonacci terms, the 50% retracement often serves as some type of overhead resistance, which is what seems to be occurring currently.

I’m also showing volume comparisons along with price to see whether or not volume rise with price (confirmation) or whether volume fell with rising price (non-confirmation).  Volume confirmed the price rise in 2003-2004 and then also from 2006-late 2007.

Like the broader market rally, RIMM’s price doubling from $40 to $80 has been met with a negative volume divergence all the way up – a glaring non-confirmation.

However, a volume NON-Confirmation formed on the absolute price highs into mid-2008… along with a negative momentum divergence as well.  A bearish engulfing candle formed at the highs and then the large cascade lower began.

I can’t help but notice how similar the price chart of RIMM Monthly is to crude oil.

I’ve labeled a potential Elliott Wave Count, which shows us potentially ending a “B” Wave up which hints that another leg down could be the expected course.

The alternate count would place the “ABC” corrective wave ending at the 2009 lows and that the rally up has been part of a new first wave, with an expected pullback Wave 2 ahead (or currently).  Elliott is just one tool to classify price structure.

From a moving average standpoint, we’d need to see price remain above the 50 month EMA (at $61) to expect any hope of higher prices.  A break beneath $60 would likely be a sell-trigger and confirm the assumption that lower prices were ahead – watch that level closely going forward – it is the line in the sand.

Now, on to RIMM Weekly:

Without going too deeply into the weekly chart, we see that price has retraced to the 50% Fibonacci line drawn from the August 2008 highs.  If you start the Fibonacci grid from the absolute highs, then the 50% retracement line rises to $91.00, which is just above where price peaked on a spike-up this week.

The gap down today has caused RIMM to shatter support from the rising 20 and 50 EMAs on the weekly frame – if price continues to trade under these levels – and especially under $70, that would be very bearish and call for an expectation of a test then potential break of the $60 price area.

The weekly chart shows the glaring negative volume divergence, which is a classic “Technical Analysis 101” concept (it’s bearish).  The fact that volume spikes have occurred as price has declined is  bearish too.

If bulls step in and start buying – seeing the lower prices as a “value play,” then they could turn the tide and keep the price rising.

However, if these lower prices “spook” investors and cause them to sell, then it would likely trigger a ‘positive feedback’ condition where investors are selling and short-sellers are shorting (both create downward pressure).

We’re at a precarious position in RIMM – let’s watch (or trade) closely to see the outcome.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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