Rounded Reversal in RIMM with Broken Support

Feb 12, 2009: 10:25 AM CST

Research in Motion (RIMM) recently completed a Rounded Reversal pattern on the Daily Chart, though with this week’s earnings gap, the stock has broken through EMA support.  Let’s see the pattern and its resolution.

RIMM Daily:

RIMM

The Rounded Reversal is a calm, interesting pattern that expects a stable shift from sellers to buyers as price moves forward in time.  It is always accompanied with a lengthy, multi-swing momentum divergence as we see here.

Price began making new lows steadily, though each new low was made with a higher low in the Momentum Oscillator.  Eventually – although it is impossible to predict – the final low was put in place as buying pressure began to match and then exceed selling pressure, and an upswing in price began in early December.

The pattern gives a great ‘edge’ because the initial stop can be very close to your entry (though not unreasonably close) and once in the position, it is generally best to use a trailing stop or exit once key EMA support is broken – as occurred in this instance thanks to an earnings announcement.  Often, the profit (when achieved) is sometimes many multiples of the initial stop.

What’s in store for RIMM now?  It’s not comforting that price broke the upward sloping trendline that has been in place since early 2009, nor that it broke expected confluence support from the rising 20 and 50 EMA.

Use this example to get a good idea about the Rounded Reversal pattern and how it might be traded effectively.

Corey Rosenbloom
Afraid to Trade.com

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