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Blackberry (BBRY) Long Term Trade Plan

|Includes: BlackBerry Ltd. (BB)


Blackberry reported earnings this morning and it was not pretty. I had been bearish on BBRY for a while, and made a few quick short trades on it in the $15-$13 range. However, I didn't have a huge conviction on a long term bear case, it was just a gut feeling and shorting off of hype and levels.

Now Blackberry has gapped down into what I would consider no-man's land. If you were to take a short or a long, I'd give you a 50/50 chance of profiting. But more importantly, I'd give those traders who do initiate a long term long or short right here right now a 75% chance of losing money. And not just on this trade. To go long or short here, even if you have strong conviction that BBRY is going to sell more smartphones over the next five years then every company combined, or that they are going bankrupt in one year, is foolish.

There are two elements to trading that need to come together to be successful. First, a good thesis. Second, timing. A good thesis is important for a trade because it will give you the conviction, it is what the trade is based off of. However if you just go out and willy-nilly buy a hyped stock for the long run and whatever price, you're going to lose money (unrealized, but losses none-the-less). Individual investors can do that because they don't have investors to answer to. Fund Managers cannot. That is where timing comes in. And for timing, I like to use levels, public sentiment, and one or two other tricks up my sleeve. Understand, here, that I only say other tricks up my sleeve because I couldn't think of anything else at the moment.

So with that introduction, let's get into how I will trade Blackberry long term.

The Trade:

Blackberry is in the middle of a range. And it is a large range at that.

While you could draw a "support" line across from that gap in late November, it is weak support at best.

This trade is not for everyone. It requires patience and a good memory of what your trade plan is. Those who have followed me know that I am a trader who looks for smaller sized positions and big moves and that is very true in the case of BBRY.

Here is my chart:

I see strong support at 8.50 with a good level to play off of (6.5) that's a big move, so you have to keep your position small enough that the loss will not be greater than 1% of total AUM. So that's the long play. I will wait patiently for the 8.5 level and will likely work into a position at various levels (buy some at 8.75ish, 8.5ish, and 8.25ish) even save a little room to add closer to 7. The target on that trade would be to sell 1/2 as it begins to fill the gap it just created.

From the short side, I will look for a few things. I will look for hype into the gap fill, and I will look to short at the 50% fib retracement. Let's zoom in on the gap:

For this trade I will work into the trade with orders to short at 12.24, the 200MA, 12.62 with room to add another leg of the short around 13.5. Wrong over 15.25.

Closing Thoughts:

Does the fact that I'm going to wait for blackberry to come into one of my levels mean that I don't have a fundamental view on blackberry? Yes and no. I believe there are people out there that are far better at analyzing a companies fundamental outlook than I am. Some of them are bears, some are bulls. When I look at the market, I tend to look at it through a very distorted lens of the efficient market thesis. I believe that in general, the sum of everyone's view of a company's value is what a stock will revert back to. When it gets cheap for the bulls, they'll buy, when it gets expensive bears will sell. This creates the patterns that we see.

I am only willing to come in and take a position, when I see an extreme level that I can play off of. The reason for this is because I don't want to play the stock price relative to the company. I am playing the market against the other participants.

If you can predict the crowd, you can play the stock market. That's what I believe, and that's what I do.

Right here, with BBRY at 10 (it has seen 10.25 and almost 11 today), I can't predict one way or another what the crowed is going to do. My guess is there will be a narrow (relatively) range for a week, then it will chop going above that range and below it, maybe even multiple times. Eventually the price will get extended and ideally it will get extended to one of my levels. There, I predict that those who were on the right side of the trade will take profits and those who were on the wrong side will give up. Then we'll revert back to a normal price.

Summary of Trade:

I'm a buyer of BBRY around 8.50 and a seller around 12.50 with a target somewhere right in the middle (10.5).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.