In terms of the big picture, today was a non-event even with the almost 2% move on SPY. We’re still below the “Lehman gap.” I’m still following my plan from last night.
I did add RIMM and DV as long positions today.
I added a position in RIMM at $66.7. I actually had a limit order set at $66.55 on Friday so I was very happy to get my price today.
I think it is clear from the chart that there is support from April and July and this is highlighted by the fib line at $66.50. RSI is at 29.6. So we’re oversold but not extremely so. On the two year chart, the only time RSI was lower was last September during the Lehman fallout. It is also a good sign that the market respected support today and closed right at the expected support level. Also helpful is that RIMM tends to be a very obedient stock and doesn’t trade sloppy. It likes to cling to the fib lines.
As I mentioned, we’re oversold but not so much that there isn’t juice left to go down to the next support level. I therefore would not be shocked if this trades down to $60. At that point RSI would be very oversold and there would be support at $60 plus the big gap from April at $58.
So why buy now if there is a chance this goes to $60? Because I see two scenarios playing out:
1. Today was at least a short term low and the stock bounces off support at $66.50 providing a great swing trade opportunity. This is the easy path and puts the trade in the green column right away.
2. Those that bought today are disappointed when it crashes through support at $66.50 and moves to an extremely oversold state near about $60 (for example, if someone downgrades the stock tomorrow this scenario could play out). If this occurs, I would be absolutely shocked if it doesn’t bounce strongly at the $60 level. My plan would be to add to my existing position at about $63.
With all of this in mind, I am setting a very loose stop at $58 just below the April gap.
To sum it up, I really like this trade because if scenario #1 plays out it means instant profits. If scenario #2 plays out, I believe there is a high probability of a bounce at $60 meaning I’ll likely at least get back to breakeven. I would expect a big bounce if there is enough selling pressure to take it down to $60 because this stock will jump like a spring off support if it becomes that oversold.
From my watchlist yesterday, I also added DV long today.
Nothing fancy here. We have a flag pattern with a low volume consolidation. Risk is easy to manage by using a stop near the bottom of the flag pole. ESI was green today after selling off 4 straight days. This is now 5 straight days in the red for DV after the big spike on 9/21. Perhaps DV turns green tomorrow. If this one is going to work, it should start moving higher real soon.
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