Research In Motion
has caught fire in recent weeks -- a response to the unveiling of a new tablet designed to compete against better positioned rivals, including
. Bulls hope the new PlayBook, which is scheduled for release in the first quarter of 2011, will translate into stronger equity performance after several years of mediocre returns.
However, I expect bears to retain an outsized advantage in the months ahead. After all, the company has already squandered a two-year market recovery, running in place while the rest of the tech universe lifted up to pre-crash levels. In addition, RIM's tablet has to compete against a slate of new offerings that are all designed to cut into iPad's phenomenal success.
Most likely, we'll be looking back a year from now and wondering why RIM was so late to the party, releasing a wonderful new product just as tablet competition was growing and margins were shrinking. Of course, that would be an old story, because this company has already failed to capitalize on the iconic Blackberry and its deep market share.
The monthly chart shows an exceptionally rocky path since the company came public near $1.50 (post-split) in 1999. Its first year on the U.S. exchanges was a smashing success, however, with the price rocketing up to $29.20 at the peak of the tech bubble. That rally gave way to a two-year decline that ended just 25 cents above the lows posted right after the initial public offering.
It then took another two years for the stock to find its way back to the bubble high. It paused at that resistance level for two more years, grinding sideways in a shallow correction and finally breaking out in October 2006. The subsequent rally added more than 125 points, with the uptrend finally topping out at $148 in June 2008.
The bear market had RIM giving up nearly 80% of the prior uptrend, and its price dropped into a test of multiyear support in the mid-$30s. Although the stock bottomed out with other tech names in March 2009, performance since that time has been dreadful -- its price has recovered just 26 points in the last 21 months. Compare that with rival Apple, which has nearly quadrupled in the same time frame.
RIM bounced strongly after the bear market, recovering about 50% of the prior decline. It then hit a wall of resistance at a double-top formation that was broken to the downside in September 2008. The barrier between $80 and $90 was tested unsuccessfully in June and September 2009, giving way to a stair-step decline that finally ended in August of this year, just 7 points above the bear-market low.
The 50-week and 200-week moving averages flatlined in the summer of 2009, easing into tight alignment, with the price criss-crossing that zone in a dead pattern that lasted into May of this year. The stock then dropped like a rock, forcing those averages downward and setting up steep resistance on this recovery attempt.
The stock lifted into the declining averages three weeks ago and has made decent progress since that time. Note that this level aligns with resistance at the November 2009 low (red line) in the upper $50s. This has set up a key test, because the downtrend off the 2009 top will remain intact until the barrier is mounted and the price reaches the March 2010 swing high in the upper $70s.
RIM is trading well at this barrier and exhibiting little or no selling pressure, despite broad-market weakness. This suggests that Tuesday's breakout might do the trick, with a potentially persistent recovery that ultimately reaches the March 2010 high, ending the string of lower highs that has defined the 2009-to-2010 downtrend.
Indeed, the decline has been an ugly one, punctuated by a massive September 2009 gap between $83 and $70. The stock entered that big hole in March but left more than 6 points unfilled, when it rolled over and sold off. That sets up an interesting upside target if the stock breaks free from resistance and continues the three-month recovery.
Although testing weekly resistance, the price mounted the 200-day moving average on Nov. 10 and is holding well above that level. Looking back at May, you'll notice that the downtrend accelerated as soon as the stock broke that moving average. This adds significance to the current breakout, suggesting that resiliency has paid off and is yielding a fresh rally leg.
However, the stock will have a tough time after it fills the 2009 gap. Massive resistance through the $80s could easily kill the rally in the first quarter of 2011 and trigger a selloff that drops the price all the way back to the levels being traded this week. That makes the success of any long position, trading or investment, subjected to the demands of careful market timing.
In other words, go ahead and buy this breakout through the $60s, but take aggressive profits if and when the uptick rally approaches and/or fills the gap between $77 and $83. That event is likely to mark a strong signal for aggressive short sellers to reload their positions and drag this chronic underperformer back down to mediocrity.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley was long AAPL, 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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