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2011 / Stock - Research In Motion
What Next For RIM
If one thing
stands out about RIM it has to be the folly of following
analysts. Every dip since May 2007 has brought out buy
recommendations from analysts both in the US and Canada as
well as world wide. In May 2007 when the stock was around 65
analysts called for the stock to go to $80.00. At $80.00
they called for it to go to $100.00. At $100.00 they called
for it to go to $120.00. The trend among analysts just
continued. But do you notice something missing from all
these recommendations? Where is the sell call? What about a
stop loss strategy? Even in June 2008 at $150.00 many analysts were
calling RIM stock a buy and a "strong buy".
most recent bear market collapse, analysts still have
called the stock a buy. At the market bottom in Oct-Nov 2008
and again in Feb - March 2009 where were all the "buy RIM now"
calls? On Friday when Research In Motion warned investors
that the next quarters earnings would not meet expectations,
the stock collapsed another 14%. Analysts downgraded the
stock and set a range of $55 to $80 on the upside. I thought
one of the more interesting comments came from National Bank
Financial analyst Kris Thompson who said he is "throwing in
the towel for now".
So why did so many analysts get drawn into RIM along with so
many investors? Looking at the chart below, the answer is
pretty obvious - earnings. Rims earnings have moved up
quarter after quarter. They have always produced decent
numbers. Yet since the market crash the stock has struggled
and cannot regain any real sustained upward momentum.
This is also why I feel it is important to monitor a number of
charts, and not just earnings. You can now understand that
even with great earnings, the perception among many
investors and much of the media was that RIM was in trouble
and this has been the deciding factor.
For more than a year the media has droned on and on about
Research In Motion losing market share, their Playbook
problems, lack of focus, lack of cutting edge products and
so much more. But earnings kept coming in better with each
quarter and yet RIMM stock refused to regain an uptrend
Next came all the analysts pointing out the low price to
earnings ratio. But I have seen stocks with excellent
earnings continue to fall with incredibly low price to
Finally a lot of blame has to fall on Research In Motion
directors themselves. It is almost as if they are unaware of
what is going on in their own market place.
thing to consider from the above chart is that during the
most recent bear market the stock collapsed from a high of
$150.00 on June 19 2007 to $44.23 on Dec 23 2008. That
is a loss of 70.5% which is why I don't believe that only
some stocks fall in bear markets. In bear markets it is a
rare event when a stock does not follow the trend lower.
Meanwhile today it would appear obvious that RIM can easily
fall to $35.00 once it breaks long term support.
Next tip, could my
Early Warning Tools To Spot A Collapsing Stock have
helped this year on Research In Motion stock? Let's have a
look. The chart below is pretty clear. Almost the entire
year an investor would have been in the stock only during a
few up trends. Notice how two upturns were not confirmed by
MACD. MACD is Moving Average Convergence Divergence. You can
read more in the above link on early warning tools. So while
not perfect, the early warning tools would have done a good
job of keeping an investor out of most of the stock
WHERE COULD THE NEXT MOVE BE FOR RIM STOCK? (RIMM
stock in the USA)
article I wrote on April 4 2011 I indicated there was no
real bottom yet in Research In Motion stock. So after
Friday's collapse where does this leave research motion
stock now. Finally a bottom? The RIM stock chart for 5 years
below might give a clue. $45.00 has seen a lot of support
over 5 years. This means when the stock falls below $45.00
there could be a lot of support or if there is big volume,
then a lot of investors giving up. With the present earnings
and the outlook on RIM for future earnings, my vote is that
we are at support on Friday. Probably a short bounce and
then a sideways motion leading up to the next earnings. From
there I will have to reassess. Meanwhile if the stock falls
easily below $45.00 then the next $10.00 drop to $35.00 is
probably going to be easy. This is not a stock to buy, but
only to trade or for those investors who do options.
But this chart also tells me a few other important things.
$58.00 is now probably strong resistance for any move
higher. Many investors who have been holding for a lot
of years are going to be worried on RIM after the collapse
of the past few sessions and the shaky outlook for the
future. This means that possibly quite a few will be looking
to get out of RIM on any reasonably good bounce. I would
think those who bought in 2006 and early 2007 before the
stock had a major rise AND DID NOT SELL on the big move up,
will be looking to get out in the next move up.
So I believe RIM may have bottomed here and may bounce a bit
and go sideways to down leading up to the next earnings. Then its
time for a reassessment. If the next earnings are
even worse than forecast by RIM, the stock will probably
fall below $35.00. In the short term it will probably break the $45.00 strike.
At this stage I have little interest in continuing to sell
naked puts. Why risk being assigned in any further meltdown?
It is far more prudent to wait until the stock proves it can
hold at this level before considering selling puts again.
There are just so many stocks and investing is not a game or
a race, but should be
treated like a business. That means when the stock
doesn't meet my criteria, then I set it aside on the watch
list and wait. There is always another day.
But with RIM the investing can continue, but
not selling puts. Instead selling naked calls as long as premiums warrant it,
will be my choice. Many investors and analysts worry about
selling naked calls. Why? The stock rising is what any
investor would want. For example, let's say I sold the June
$58.00 strike and for some reason the stock took off and
worked its way to $59.00. If the chart's show a nice
uptrend, I would buy stock and turn it into
a covered call. It's a pretty simple strategy. Yet investors
fear a runaway stock. Again they shouldn't do a strategy
they are uncomfortable with. If their fear is the stock will
run up past their naked call then don't do calls. For me
when I sell a call, I know why I would turn it into a
covered call and at what price.
The best time
to sell naked calls is when a stock becomes like RIM, in a
downtrend and "unloved". Right now I am
holding 5 June $58 calls. Previously I was holding May
$58 calls which I bought to close on Friday with the
downturn. Looking at the above chart, it's obvious why I am
selling the $58 strike. I believe it is at the top of the
long term range for RIM.
I have written many times all over my site
that it is important for my investing to have confidence in
my charts and the stocks I follow. It is this confidence
that lets me easily make decisions and take advantage of
opportunities and Friday was an excellent opportunity to
close my May calls early. Now it's just a matter of when to
close the June $58 calls.
Research In Motion is far from a dead stock. They have a
mountain of cash, very little debt and a widely used
product. But shareholders have been hurt by what I believe
is the wrong approach to investing in RIM. I do not believe RIM is a buy and
hold stock by any stretch. Selling options against RIM is a
far better strategy. You can
check out my
RIM trade here. At this point I have made $24,500.00 on
RIM and earned double digits annually. Presently I am selling 5 calls at $58 for a
capital cost of 29,000.00 if assigned.
This means I have less than 5000.00 of my own capital in
As long as volatility holds up I can continue selling
options for decent premiums. If that volatility should end I will
have to say goodbye to
Research In Motion.