2 Reasons BlackBerry Is Heading Back Up

Summary

• BlackBerry just gapped up in a manner that implies an area gap, yet the price has not yet fallen into the gap.
• Upon further testing, I found that this gap is likely a breakaway gap, implying a further upside.
• A slew of good news positions BlackBerry as a bullish underdog story.
• Playing the technicals and fundamentals with an options strategy could produce 20% income per month per lot.

As I write this BlackBerry (NYSE:BB) is sustaining its price above the recent gap:

(Source: Etrade)

Usually gaps of this size are area gaps and thus fill quickly. However, this current gap was made on significant volume and has been sustained the day after the gap (not falling below the previous day's low). This leads me to believe that we might be seeing a breakaway gap.

I decided to test this theory. I backtested trading gaps of this type over BB's time trading on the public market. While gaps of this type are relatively rare for BB, they do make for good long trades.

Here is the return performance for buying these gaps (buying BB after the gap) and holding for five days:

(Source: Damon Verial; data from Tiingo)

While gaps of this type were unprofitable shortly after the dot-com bubble, they have been reliably profitable after 2003 or so. Oddly enough, testing this gap type with a candlestick pattern that appears more bullish (green->gap->green instead of green->gap->red) is not profitable. My explanation here is that post-gap BB needs to pull back a bit to signal that the gap isn't an overreaction that can lead to a pump-and-dump; thus this particular gap looks to be part of a sustained uptrend.

Breakouts like this are often seen with caution due to the fear of buying an overbought stock. However, "turtle trading," a strategy in which you buy at new highs and sell at new lows on shorter durations (e.g., buy the 50-day high and sell the 20-day low), actually supports buying BB at this price. Even the RBC downgrade today didn't push BB into the gap, further supporting the idea of a turtle trade on this stock.

On the fundamental side, we have a slew of positive news for BlackBerry. Rarely does a

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in BB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.