Research in Motion RIMM Falls – Support Below?

Sep 30, 2008: 11:24 AM CST

Research in Motion (RIMM), a popular stock for day-traders due to its volatility – recently plunged from an August swing high of $135 to a September low of $60 per share.  Let’s look at the current chart to see a good “Measured Move” pattern example as well as potential support for RIMM on the weekly chart.

RIMM Daily:

RIMM has fallen from $100 per share to $60 per share in a matter of days – but a support ‘counterswing’ bounce may be ahead.  But first, let’s look at the good example of a “Measured Move” pattern in the daily chart.

A “Measured Move” is similar to a flag pattern, only the price doesn’t cleanly resemble the sharp impulse that characterizes a true “flag” pattern.  I label the Measured Move Pattern using ABCD in the formula:

“Price Swing A to B will be Equal to Price Swing C to D” or simply “A to B equals C to D”.

Or to put it in trading terms, “Expect the breakout of the rising trend channel to complete an equal swing as the prior “A to B” move that preceded it”

I have more confidence trading true Flag patterns (especially those that retrace to clean support or resistance) but measured moves can also provide low-risk, high reward trades with a fixed stop and target.

RIMM shows us this pattern as price complets the “A to B” swing from $145 to $100 and then forms a parallel rising trend channel (forming a 45 degree angle) and then the breakout (which also breaks beneath the moving average support) launches the price projection $135 – $45 (the measured move) = $90 (price target).

Price stopped at $90 per share (these are rough estimations) before forming a counter-swing up into moving average resistance before plunging overnight last week to the current $60 level.

But is there support at these prices?

RIMM Weekly:

Indeed it apperas so, with the 200 week Moving Average just below the $60 per share level, and price bouncing off this level.  How long the bounce will last is anyone’s guess, but odds do favor some sort of continuation move (counter swing) up.

A negative momentum divergence preceded the recent trend reversal and change in trend.  As price made new highs into May 2008, the momentum oscillator was making a lower high, signaling ‘possible trouble ahead’ and a potential change in trend (or at least non-confirmation of the recent price swing high).

Capital preservation remains the #1 goal of this environment.


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