A Wild Ride for Research in Motion

Feb 14, 2008: 10:07 AM CST

Research in Motion (RIMM), famous for the Blackberry and volatile stock prices, has shown investors more than a roller-coaster ride, and also has shown more volatility than most investors can stomach.

Let’s look at the harried daily chart:

I have tried to highlight just some of the larger gaps (purple ovals) in the stock. Sometimes this stock could gap $10 or $20 points overnight!

Notice the most recent major gap on December 24th, which represented the recent swing high in price. Traders who bought on this day are severely underwater in their position. The gap filled a week later, and actually formed a mini-island reversal pattern.

The stock also formed a heinous bear flag from mid to late November, with price rising almost exactly 45 degrees in a flag-style pattern (blue parallel lines) which tricked traders into a false sense of security before ripping their accounts to shreds with a massive down-day and overnight gap that took price from $125 to $105 in two days.

Again, price gapped from $105 to near $125 in late December, only to fade and destroy more accounts who were positioned incorrectly, but with good intention.

Also, I have drawn two key positive momentum divergences that further served as potential ‘tricks’ for traders. Both divergences got their targets and resolved almost immediately.

To be fair, it is essential to view the weekly chart for a higher time frame. Actually, what looks horrific on the daily chart looks quite tame and ‘classic’ on the weekly chart:

Notice how price has been in a sustained uptrend and the 20 period moving average has served as key support until December 2007. When the 20 period weekly average failed to contain price, the 50 did.

Price is now trapped at potential resistance from the falling 20 period average. Volume has remained relatively steady throughout this whole period, including the key accumulation phase for most of 2007.

To show an example of a trend day up in a common stock, let’s give the bulls some credit and view the 5-minute chart:

The 5-minute chart also shows key day-trading setups due to moving average pullbacks and bull flags (along with price wedges). The bull flag is a classic and profitable trade setup based on visual pattern recognition and price alone.

Any stops would go beneath the key 20 period average or preferably the key 50 period moving average.

Although Research in Motion (RIMM) as a stock can be very profitable to trade, the question becomes “Can you stand the volatility?”

(Post Sponsor: MarketClub and INO.Com. Visit them for more market education.)

2 Comments

2 Responses to “A Wild Ride for Research in Motion”

  1. Stock Market » A Wild Ride for Research in Motion Says:

    […] Corey Rosenbloom wrote an interesting post today on A Wild Ride for Research in MotionHere’s a quick excerptAlthough Research in Motion (RIMM) as a stock can be very profitable to trade, the question becomes “Can you stand the volatility?” (Post Sponsor: MarketClub and INO.Com. Visit them for more market education.) […]

  2. Ana Says:

    Corey

    I don’t trade US stocks only Futures and Forex which is more than I can handle the volatility lately!

    However, I read widely to keep abreast of the market. Just soon afer I treated myself to a Blackberry for the Lunar New Year, I read about the ‘blackout’ of Blackberry in the States that put all users out.
    For this very reason, I keep more than 1 handphone.

    There is no doubt that the Blackberry is superior for traders on the move.