Research In Motion (RIMM) – Target this Price on the Downside (Update 1)

On February 10, we produced a blog with the above title.  (See post here.)  In the blog we produced this chart targeting RIMM to reach EBV-3 or $13.

RIMM with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Since this blog post, one can see RIMM’s share price using EBV-3 for support.  Here is last night’s model price chart.

Research In Motion with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of RIMM subsequent to this post will be maintained on Facebook, here.

So what happens now?

RIMM will likely use EBV-3 for support until there is some pre-announcement on their 4th quarter, if any, or their scheduled release on March 29, 2012.  This will be what we are looking for.

1.  Obviously, the year-end balance sheet will be released, and we will update the model price chart to reflect this new information.

2.  Most analysts still have RIMM making money in the 4th quarter.  (Scotiabank for instance is looking for 85 cents for the quarter.)  Just as long RIMM is making money on an operational basis, until the release of QNX enabled smart phones, this we would view as positive.

3.  We will be looking for an update on when the new QNX OS smart phones will be released.  Current release date we believe is November 2012.  If this release date were pushed forward, this would be very positive for RIMM.  (Just as a delay, would be viewed negatively.)

Model Price Strategy

Currently, unless announced information from the company indicates otherwise, it’s hard to see RIMM trade below EBV-3.  Why?  It’s an operating business, making money, with no potential material write offs coming from the balance sheet.  (They already took an inventory write down in the third quarter.)  Solvency is not a concern short-term, as long as the company, keeps its’ expenses in line with their revenues.

We would love to see a 1-2-3 bottom in this situation.  We are NOT technical analysts however 1-2-3 bottoms and tops on a weekly, and monthly price chart are powerful signals for us.  RIMM definitely has the potential for this formation bottom.  Certainly if the share price exceeds point 2, or EBV-1, on the chart above, this would be very bullish signal.

What is interesting, in this situation, is the divergence between the analysts’ and the market.  With analysts’ consensus estimate of earnings giving us a computed model price of $42.30, bringing model price above EBV+2. Obviously with the market price at EBV-3 the market does not believe the analysts.  Who is right?  We guess we will find out in a couple of weeks.

Again, we are not making recommendations here to anyone.  Our point here is showing our readers how to use model price charts to strategize, to draw a battle plan, if you will, to profit in the equity markets.

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