BlackBerry Chart Suggests Volatility

NEW YORK (TheStreet) -- I can't help having a bullish outlook with smartphone maker BlackBerry (BBRY).

That may sound strange coming from someone who shorts more often than buys, but history has shown us that charts are fantastic at illustrating investor sentiment. History also demonstrates that when emotions are high, the market often misprices companies.

When I wrote Yes, BlackBerry Is a Buy, I was motivated by the valuation potential, but the chart formations provide timing. I use a custom variant of Tom DeMark indicators as one my primary tools to time entries and exits. DeMark wrote several books, including one of my favorites, New Market Timing Techniques.

On any given day, emotion is the primary driver of price action. Over the long term, however, a company's fundamentals dictate valuation. For example, on Tuesday this week, BlackBerry shares closed at $9.93, and on Wednesday, they closed near $10.75, a change of 8%. The plant, offices, inventory and other assets didn't increase in value, at least not as much as 8%, but investor sentiment clearly shifted.

We can measure the degree of emotions and reactions using charts. Certain chart patterns have incredibly high percentages of predictability. We don't necessarily need a high percentage of expectation; we need only enough to provide a reasonable edge.

Courtesy of Tradestation

During the week ended Nov. 15, BlackBerry completed a TDCombo buy setup at the point of the 13 on the above chart. (I placed a red circle around the bar.) If you've never heard of a TDCombo before, today is your lucky day because it's one of the most respected technical indicators used by large funds. A Google (GOOG) search or the book mentioned above will set you in the right direction.

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