Investors initially loved the better-than-expected profit results and shares rocketed 7% higher immediately Friday morning. It didn't take long before the market unloaded shares faster than an angry Gerber baby brings up green peas.
By the closing bell the initial gains reversed and shares declined over a dollar lower to close at $8.41. Selling continued on Monday on above-average volume and shares closed below Friday's lows. I refer to a drop after earnings with follow-through for two days a "gap+2," and it often signals the end of intense selling after a disappointing press release. In this case, the press release is the earnings report.
The result is BlackBerry will likely dead-cat bounce either Wednesday or Thursday and short-term swing traders will want to enter a long position to capture the likely bounce. I wrote a Real Money Pro trade idea focused on active swing traders with exact entries and exits. BlackBerry is currently trading around $8, up nearly 10% for the year to date.
In my last BlackBerry article, I discussed the earnings results and why investors can continue to believe in the turnaround story by the company's CEO John Chen. The market sharply changed direction, leaving blood on the Street.
For long-term investors, the six-day selloff represents a value play that I expect will signal an outstanding entry. In the outstanding book about finance and politics titled Mobs, Messiahs, and Markets, William Bonner and Lila Rajiva painstakingly detail the perils of investors face if they become a faceless and unthinking member of an emotional trading mob.
After taking the pain of the first and second day's decline after earnings, why would someone then decide to sell their shares at an even lower price? It makes no sense to me because I've done the work to know that on the third day, the odds of bouncing at least up to the highs of the day before are over 60%.
In other words, if you want to pull the rip cord and jump out of the position because the losses are mounting or you're losing hope, wait one more day and chances are you will get a better price unless you're selling at the highs of the day (which you don't know in advance).
If you're attempting to beat the market, you can't become one with the market. The investing mob tends to buy high and sell low. This phenomenon of entering and exiting at exactly the wrong time is easily illustrated by the heavy volume associated with tops and bottoms.
Your best bet in avoiding emotional decisions is to have a plan in place before making a buy.
A written plan describes your entry and exit points to avoid the cost of knee-jerk reactions. You need two exit amounts, one for taking profits and one for stopping out in case moves the other way. Create your plan before you enter. That way your thoughts aren't clouded during the heat of the battle, or what's also known as the fog of war.
Another protection measure in front of earnings is to sell a call against some of your shares or buy a protective put. I prefer to sell calls because option premium is especially high before an earnings release. The premium received acts as a buffer if the shares fall and will often result in a profitable trade regardless of the results.
That said, Google (GOOG), Apple (AAPL) and Microsoft (MSFT) have reduced BlackBerry's handset market share below 4%. While it's true the ecosystem is all but dead, the market has fully discounted BlackBerry's handset death for some time.
If the environment changes, shareholders stand to win; otherwise, anticipate Microsoft's recent and renewed vigor into the mobile space to make things more, not less challenging. It doesn't matter to me, and it shouldn't to you because enterprise solutions are profitable and BlackBerry maintains its solid leadership in that space. Beyond the current operational turnaround plan, the company has other options open and available.
The company's war chest, stuffed with $2.7 billion, enables the company to make strategic purchases and have the wherewithal to avoid a scorched-earth attitude to keep the wheels from falling off. At $8, over half the value of a share is cash alone.
For a buy and hold investor willing to wait for a return to profitability, BlackBerry is one of the few technology giants that can reasonably double in the next 24 months.
At the time of publication, Weinstein had no positions in securities mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.