RIM is going down beyond my initial target. Looking at it on a log-scale it is still possible that the pattern is correct but that notion would have to be abandoned if this continues another day. What is unclear is what the count would be if the “wedge’ does not work. A series of 1-2s from the initial $90 level is a possibility but that would be extremely bearish and , at this time at least, improbable.
Not that it means much but the RSI is at the lowest level in 3 years!
RIM
If you use a sharp pencil , you could say that today’s low is right in the trend-line. More often than not it does not even get there. The stock could still drop to the $22 level but regardless where you buy it, it should have a rebound to the $30 level.
RIM has dropped slightly below the trend-line. Things have never been so dark so from a contrarian view it must be a buy.
Ford also had one of these diagonals. It too exceeded the trend-line briefly. Now it is in the correction of the first bull leg. As mentioned earlier this correction can be very deep and should look like and a-b-c. $11 is where c=a, $10 is the low point in the triangle on the way up and a 60% correction would take the stock to just under $8. Where it will, in fact stop, time will tell but on average a buy at $10 will probable be profitable.
CCO, F, RIM
Last I looked RIM traded at around $29.83 in US$ after hours. The exchange rate is presently pretty close to par so applying that we should be right on the line. That should be a buy for at least a decent bounce of 25+%.
RIM
These two charts are unrelated, the top one is that of the Nikkei 225 , an index , covering a period of 30 years or so. The bottom one is that of RIM, a single tech. stock, that , by the way, is reporting tonight.
I used to have an investment advisor sitting right next to me at WG. JP were his initial and he is now a frequent speaker on BNN. I would put two identical charts under his nose and ask if he could see the correlation. More often than not he couldn’t. From that I learned to understand that everything is truly in the eye of the beholder.
To get to the point, I think RIM may or may not drop another dollar or two but the next big move probable is up and quite a bit. The Nikkei has not completed the “diagonal” ( read wedge) yet and should soon drop. In the end both charts will look almost identical, unless you are JP.
Correlation , incidentally, does not, of course, imply any causal relationship! The common factor here is sentiment that has moved from euphoria to grinding despair.
Nikkei 225, RIM
RIM as per my last blog on June 2 ,2011, could go as low as $25. Now that we are getting a little closer it is possible to refine the target to something in the order of $31 or so. As popular as this stock once was, so unpopular it is now. Every analyst is crawling over the next guy to come up with even lower targets. Each leg in this structure should have an intermission somewhere in the middle. That has happened perhaps,but it is hardly discernable with the naked eye which explains why it seems to have gone straight down.
The good news is, that if we hit the target (and we can turn anytime now at these levels!!) this stock should go straight up. $45 is the very minimum, $70 is very reasonable and, if this is the pattern I think it is $90. (see June 2 blog).
RIM
RIM was never a favorite, briefly it looked like a spread trade against Apple might work well but that one almost immediately went sour despite a very nice climb in RIM stock.
Revisiting the stock it is pretty hard to be too optimistic. On patterns alone the overlapping behaviour for the past two years suggest a diagonal is in the making. A good example is provided by Marvell Technologies (see earlier blog). If it does do this the target could easily be as low as $25. But , on the positive side, the stock should shoot up to about $90 immediately thereafter.
RIM
http://www.thestar.com/business/article/835823–olive-a-rim-rebirth-in-the-offing
I read the Toronto Star simple because it is the only paper delivered in the country. It can be quite good at times as in this morning’s article by David Olive in which he anticipates the rebirth of Rim and,at the same time, a backlash against Apple. The article can be found on the internet under the above address.
In a pairs trade you go long A and short B with an overall position that is “market neutral”. A typical application of this concept , that was popular a few years ago , was to buy corporate bonds and sell short government bonds as a hedge. Often you lost on both sides as spreads widened and govies gravitated to zero. Not what you want, clearly it is important that the two entities A and B have enough attributes in common to make them pairs without being identical as then it would, by definition, not work. I year or so ago I had a comparable trade long CM and short RY that worked quite well. Both are, of course banks, but CM is groping in the dark whereas RY is arrogantly focused and as a consequence CM was lagging behind.
RIM and AAPLE more or less fit the picture sufficiently well to give it a shot. RIM trades at a P/E of about 12 at a price of $56 and APPL at a P/E of 22 at a price of $253. For the sake of simplicity we will overlook the fact that one trades in C$ and the other in US$ (which could be remedied by using RIMM instead) To be market neutral you need to buy 4.5X as much RIM as you sell AAPL (253/56)- you buy 4.5 shares of RIM and sell 1 share of AAPL. Technically you have no money in the game as the sell pays for the purchase (this does not work in retail!). From this point on you do not care where the market goes but you do want the two to converge. Will they? Here are the charts once again (using RIMM).
Both charts have identical time frames and both are in US$. You can click on them to enlarge and you can move them around to get a better feel. From an EW point of view, AAPL looks like a completed 5 wave up move whereas with RIMM it is more ambiguous as the top in the chart may only be the 3d wave implying that new highs lie ahead. In any case it is clear that RIMM is at the bottom of its range and AAPL at the top (buy low , sell high ). To put it another way, AAPL has a much higher degree of freedom to move up. Also one could , of course argue that the stocks are not sufficiently comparable to be considered a pairs trade. No problem provided one agrees with both stories but just do not call it a pairs trade. See also my earlier comments on RIM and AAPL .
To Finnish this subject , one might want to look at Nokia NOK, not sufficiently comparable but possible a buy in it’s own right. The chart be low is log-scaled to emphasize the a-b-c correction that the stock has suffered over the last 10 or so years
AAPL, NOK, RIM
As you know, I do not have a great love for RIM perhaps, for the simple reason that I do not understand why anybody in their right mind would want to be in contact with their boss over a weekend or whatever. My most recent boss at WG could not keep his eyes of the thing making me wonder what wisdom was imparted to him through this particular channel . None as far as I could tell. Here is the chart:
Looking at it the past few days it occurred to me that this may just be a buy. This really goes against the grain but that is what EW is all about. I hesitated but noticed that there were some upgrades etc. so here we go. Buy it with a stop of about $45. You will lose 10+% of your money if I am wrong, but then you could gain a bit more than 100% if it does the inconceivable and goes to $105
Sometimes things are very hard to comprehend, and just as your gut gives you the right signal you ignore it. I remember clearly that Apple went down the drain into single digits and it seemed odd to me the a brand like that would just leave this earth ( of course Atari and the one before that , did just that). Anyway here is the chart.
The “you are here” label is not entirely correct but one does get the point that higher values are certainly POSSIBLE, which is why I would insist on the stop, real or mental or go for options. Long term I do not think this stock will go to new highs, so do not outstay your welcome.
By the way, AAPL is a great 5 wave up, exceeding the trend-line only marginally. Remember the ONE and ONLY rule that works, buy low sell high. This is high!
AAPL, RIM
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