Research in Motion Leads General Market Higher

Friday’s action was the first time in weeks that leading stocks began leading again. Major averages put in key confirmations of the rally that started in late November. I had started to give up on this rally due to the lack of leadership from glamor names and poor action from the NASDAQ and S&P500. I am once again watching for hyper-growth stocks to begin emerging from healthy consolidations.

At this point it’s pretty old news that Research in Motion (RIMM) surprised the market with its earnings report Thursday night (see conference call transcript). This report detailed EPS growth well over 100% from November 2006. Very exciting stuff! Very few companies have the ability to produce quarter after quarter of stellar earnings growth like RIMM.

RIMM shares gapped higher Friday on almost double average trading volume. Wall Street is eating this report up, rolling out upgrades and praising the company for its job well done. RIMM deserves these accolades. Yet, I still haven’t pulled the trigger and gone long RIMM shares.

Here’s why: I am waiting for RIMM to break out of its current trading range, which could be viewed as a somewhat wide and loose O’Neil double bottom. This double bottom formation will be completed if RIMM can break through the $124.60 area on at least 45 million shares trading volume. This could easily happen in the next few trading sessions. Any breakout on light volume would warrant caution.

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A strong volume breakout from this formation would produce a buy signal, even stronger if joined at new highs by names such as Apple (AAPL), Google (GOOG), Baidu (BIDU), and Intuitive Surgical (ISRG). This would indicate that RIMM has the institutional backing to move much higher. Those who decide to buy shares should manage risk with stop losses 5-8% below their purchase price. Things can change quickly in the equity market, even for the very best companies, like RIMM.

Happy Holidays to all!

Disclosure: Author is long 1 ISRG call option from its previous breakout attempt.