And the bloom is off the rose at
Research in Motion
(RIMM), a former tech darling that's now bleeding market share in the ultra-competitive smartphone industry.
Taken together, these two tech giants have inflicted immense shareholder pain this year.
Flash back to the middle of the last decade and consider how badly you wanted to own these two iconic companies, whether for short-term gain or as investments you could pass along to your children and grandchildren. Times have certainly changed, with these twin pariahs spiraling lower in long-term downtrends that show no signs of letting up.
At the same time, bottom fishers and the value crowd are stalking these issues, looking for definitive signs the selling tide has finally turned. There's good reason for their undivided attention and commitment because reward potential in these fallen giants will peak right at their major turning points. But taking fresh exposure too early, even by a month or two, can be costly to your bottom line, waste speculative capital and undermine confidence.
Weekly chart analysis offers an enormously valuable tool for Cisco and RIM bottom pickers because it will identify deep support that should attract fresh institutional interest. These are the price zones to watch for notable shifts in the long-term volume pattern from distribution, characterized by persistent selling pressure, to accumulation, characterized by cautious buying pressure.
This process is better known as the transfer from weak into strong hands, revealing its handiwork in the development of long-term basing patterns that will yield strong uptrends. In that regard, let's look at the weekly charts of these twin tech losers and see where buyers might emerge and stop the tenacious forces of gravity.
Cisco Systems rallied to $34 from $8 between the end of the 2000-2002 bear market and the height of the real-estate bubble in 2007 (blue lines). It retraced 78% of that uptrend into the 2009 low (red line) and entered a steady recovery that regained about 62% of the 2007-2009 decline (green line). These proportions are instructive because they all represent key Fibonacci retracement levels.
The stock topped out at $27.74 in April 2010 and entered a steady decline that's still in force nearly fifteen months later. The downtrend shows four sell waves, with price failing to bounce at a declining lows trendline (black line) in March and extending the last sell wave in a capitulative downswing that's carried into July.
This last wave points to long-term holdouts finally giving up and selling their shares. As a result, accumulation has dropped through the floor in 2011 and is now sitting at multiyear lows. The next support level comes into play at $13.60, which marks the low of the last bear market (red line). That level should yield a decent bounce but prospective investors should proceed with caution because they might be left holding the bag.
The steep decline between 2007 and 2009, followed by a lower high and selloff that's tracking an identical downward slope suggests we're looking at a two legged correction, in which AB will eventually equal CD. That pattern forecasts a final bottom near the 2002 low around 8.50. At a minimum, this stock will probably be in the single digits in the next 12 to 18 months.
Research in Motion rocketed from $1.39 at the end of 2000-2002 bear market to an all-time high of $148.13 in June 2008. It then plummeted into the $30s, finally bottoming out at $35.05 in March 2009. The subsequent bounce topped out at $88 (red line) just six months later. That price level, which retraced less than half of the big selloff, still marks the post-bear-market high.
The decline off that major top shows two lower highs (green lines), posted in March 2010 and February 2011. The steady downtrend looked garden-variety at the time because those highs marked significant recovery attempts that had financial analysts calling the bottom and pounding the tables with Buy recommendations.
Of course their bullishness was misplaced, with the February peak giving way to a waterfall-shaped plunge, marked by a June breakdown through the 2009 low (black line). The stock is currently trading at a four-year low, and trying to stabilize at the top of a broad basing pattern that was carved out between 2004 and 2006 (blue line).
The current selloff marks the third impulse of the downtrend that began in September 2009. Market trends often unfold in three waves, suggesting this is the final capitulation before the start of a new uptrend. But bottoms take a long time to form and the stock could test $20 before establishing a final and tradable low. In any case, it should be a long process that extends into year's end.
At the time of publication, Farley had no positions in any of the securities mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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