A Rounded Reversal in Store for RIMM?

Dec 20, 2008: 7:31 PM CST

Is a Rounded Reversal chart pattern in store for Research in Motion (RIMM)?  The chart appears to be setting up that way – let’s see this development and take a closer look.

RIMM Daily:

It would appear from the chart that RIMM is indeed in the middle section of a possible “Rounded Reversal” or saucer-style bottom pattern, where swings are contracting and appear to be turning upwards.  Notice the momentum oscillator has consistently been registering positive momentum divergences as price continued to make new lows.

This pattern will be confirmed if price were to cross above the falling 50 day EMA, and would further be confirmed by a bullish or “Golden” Cross of the 20 and 50 day EMAs.  More conservative traders might want to wait for that to develop, while more aggressive traders might want to enter currently.

The pattern will be invalidated (over-ruled) by price breaking through strong support at $35.00 per share, so if you decide to trade in RIMM, placing a stop beneath $35.00 or even $32.00 or so might be a good idea.

Let’s back the picture to the weekly chart to see a possible completed Elliott Wave Count there.

RIMM Weekly:

If this is the correct interpretation, Wave 1 terminated shy of $50 in late 2007; Wave 2 formed a lengthy ‘flat’ or rectangle pattern, while Wave 3 burst on the scene forming the new price and momentum high.  Wave 4 was a sharp, ABC correcting back to the rising 50 week EMA (also the while wave 5 took is into mid-2008 on new price highs that formed under a negative momentum divergence at the upper Bollinger Bands, signaling the possible peak of the completed impulse.

Corrective Wave A took us back to the rising 50 week EMA while Corrective Wave B retraced roughly 70% of Wave A.  We would technically thus still be in the Corrective C Wave, though it would appear the C wave is running out of steam at the moment (notice the positive divergence transpiring into new 2008 lows).

Continue to watch this stock, and many other technology stocks that are forming similar patterns.  Try not to get overly risk-seeking, as the major US Equity Market remains in a confirmed, large-scale downtrend.

Corey Rosenbloom
Afraid to Trade.com

5 Comments

5 Responses to “A Rounded Reversal in Store for RIMM?”

  1. toad37 Says:

    Thanks for the post on a Saturday Corey. Great analysis and potential trade idea.

    BTW, how did you come up with the name of your site? I really love the name. Very fitting for what I’m going through right now. 🙂

  2. Corey Rosenbloom Says:

    Toad,

    Personal experience 🙂 Initial success, overconfidence/cockiness which led to over-leverage and a large loss, a dedication to ‘conquer the fear through education,’ and then the overcoming.

    Initially, I just thought it was catchy and memorable, then it grew exponentially and now I love it (the name).

    I think it’s a common pathway – from early ‘beginner’s luck’ to a big blow-out to a fear mentality to education to success. It’s a process that many go through. I have a background in psychology so that sort of helped me take a different direction than most traders.

  3. toad37 Says:

    Corey,
    That is basically what has heppened to me. I didn’t blow up my account, but I gave a lot back and it has made me terribly gun-shy. I have a degree in psychology, so hopefully I can learn from your lessons as maybe we speak a similar language.
    Regardless, I love the name that you chose!

  4. dacian Says:

    Corey, I dropped you an email requesting for a point of view on gold’s chart. It looks like we have the beginning of a bear market here. 50DMA is dropping and 200DMA is turning down.

    http://4.bp.blogspot.com/_V7Pddp58Py0/SUqf8B3HuhI/AAAAAAAAB9I/-LOHRBHGWaw/s1600-h/gold.png

    I post my request here as I don’t know what’s the best way requesting for an analysis.

    Thanks in advance

  5. Anonymous Says:

    About this pattern… i have seen it in other time frames, personally will play it short if it sees new lows, or bullish (as you see it, as the volume bars look nice) when it starts to move higher. If by chance it does go lower, it usually goes very fast.