RIM Chart Shows a Bearish Pattern

By Bryan McCormick

Research In Motion (RIMM) is showing a bearish pattern in progress on its daily chart, a "flag" formation that was triggered when the stock broke below the $69.70 area.

click to enlarge

The downside potential for the pattern is shown at right with a light blue line. A target to the $55 area is possible, as long as nothing emerges to interrupt the pattern. As with any pattern, of course, new information or trading behavior can disrupt or void it.

The RIMM pattern would be no longer valid on a breakout back above the top of the flag at the $73 area. It would become inactive, but still be a potential one, on a rise back above $70.

The chart below is an update of the five top-weighted stocks in the Nasdaq 100. Research In Motion was amongst the top five back in early June, shown by the pink line that is at the highest percentage level away from the other stocks. The light blue histogram bars show the percentage gain of the Nasdaq 100.

The BlackBerry maker's shares had gained nearly 100 percent at one point from the March lows, and as we can see on the percentage axis on the right of the chart, it has come down sharply. Note that the other stocks for the most part turned up while RIMM has been coming down, which is how the index was able to continue rising.

RIMM is no longer in the top five by weighting in the index, slipping to No. 7 because it has dropped in price and market capitalization. If the pattern in question does unfold to its full potential, it will have a substantial dampening effect on the index as a whole.

In the end though, RIMM would likely not be in the top ten names by weight, if all other factors remain as they are now. The combination of weighting and price movement changes the ability of a stock to influence the index, and vice versa.

(Chart data provided by Thomson Reuters)

Comments

[JamesApple]

I agree with this report upon its findings.

Rim is probably too deeply entrenched to come up with something to interrupt the pattern.

2009 Jun 26 02:47 PM

[DuffBeer]

Would this be a candidate for writing covered calls ???
DuffBeer

2009 Jun 27 12:59 PM

[gummo]

What about this pattern after today?

2009 Jul 08 06:14 PM