Although the general psychology in which RIM's share is trading is negative since 2009, we are now at a price level where it seems that all the negative news has already been discounted. The price, moves sideways since the end of June of 2012 (see chart 1, trading range) and depicts the uncertainty among investors. Since June, we keep reading a lot about a possible failure of the BlackBerry 10 platform and how this could affect the price action. We also read about the response to that negative news from RIM itself and the promises for a perfect final product which will be able to gain back the lost market share. The truth is that the uninformed, individual investor can't make a decision based only on rumors and promises. The current sideways price move, gives the investor the time to think about the next possible price direction. A price breakout above the trading range (see chart 1, trading range) and an initiation of a new rising trend could be triggered when the news on RIM is really good. The good news for RIM right now could only be the success of the BlackBerry 10 platform and nothing else. This kind of news can't come until the first half of 2013 where the first BlackBerry 10 phones are out to the public and the first sales records become known. On the other hand a possible downwards move under the lowest low price level at about $6.22 could indicate a Blackberry 10 fail and the start of another bearish trend and new lower lows.
Is there a way for the uninformed investor to predict the beginning of a new upwards move by only looking at the price action?
If we take a closer look at the price chart 2 we can easier see the last major downtrend of the price since January of 2011. Most of the time before a new trend begins; the price consolidates for a while. According to Dow Theory, a major trend consists of three phases which depict the market psychology and the public sentiment. The start of every new trend occurs by the informed buying of the most astute investors who know that the market has assimilated all the bad news and that something is about to change. This buying of the informed investors, causes the price changes and the beginning of a new trend which is called the accumulation phase. The second phase is the public participation phase where the most technical trend followers begin to participate. It occurs when prices begin to advance rapidly and business news improves. The last phase is the distribution phase where the news on the market becomes better than ever and the last investors try to participate in the trend. At the same time the same informed investors who began to open new positions at the accumulation phase, begin to "distribute" before anyone else starts selling. If the uninformed trader could identify and follow the actions of these informed investors, he or she could make better trading decisions. In a trading range, an increase in volume at the upper boundary of the oscillation indicates that a bullish break out is probably near. To the contrary, an increase in volume near the lower boundary of the consolidation could indicate the initiation of a new bearish trend. Watching the volume at significant price levels like a support or resistance, it can be extremely useful in the process of identifying the reversal points.
As far as RIM is concerned, a significant bullish warning the investor should be aware of, would be a rise in volume near the resistance at $8.5 price level. Such a rise in volume should warn the investor of a possible change in RIM's price and a possible breakout of the resistance, triggered by those informed traders. In our case, such an action does not exist. The low public participation which can be seen in volume of the last trading days (see chart 3, volume), indicates that the majority of the investors prefer to stay at the sidelines at the moment and wait for a price move which will trigger a start of a new major trend.
Now let's take a look at the technical aspects of this very important trading range (see chart 1, trading range) which as we said before, it depicts the public's uncertainty. For a long term trader the upper boundary of this consolidation area is of great importance. The price oscillates between $6.22 and $8.5 whenever bad or good news is being published. The inability of the stock's price to break the $8.5 level upwards; indicates that for some reason this level is too strong to be broken. On chart 2 we can see the major downwards move since 2011 and the bearish trend line (see trend line W1, chart 2) which serves as a strong resistance level. What makes this bearish trend line so important is the fact that it has been tested too many times in the past without the price being able to break it. Another fact which adds some extra validity to the resistance level of $8.5, is that the bearish trend line coincides with the resistance level at about the same price (see trend line D1 and Resistance D1, chart 3).
The last week's price action gives extra validation to the strong resistance level at $8.5. The price wasn't able to break this price level upwards, but instead it continued the sideways move. We should not expect the price to reverse upwards at the moment, but a possible bullish break out of the $8.5 level in the future could indicate the start of a major trend reversal. The long term investor should be looking for an unusual increase in volume near the resistance level and a possible bullish break out. The short term trader can trade the oscillation of the price between the lower boundary at about $6.22 to the upper boundary at about $8.5 (See chart 1, upper and lower boundaries).
The first half of 2013 is a crucial time period for RIM. The launch of the BlackBerry 10 platform and the first sales reports can reveal the share's future price direction.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.