Lou Schizas: Don't bet on a turnaround story at RIM

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Hi Lou,

I used to watch you on television and I really value your opinion.

Could you give me your analysis of BB (BlackBerry)? I bought some shares at $30 and am thinking of averaging down. Should I buy some more now or wait and maybe buy some more later? In your opinion, has it broken its long-term (multi-year) downtrend? Is BB just consolidating or are the charts telling you anything negative? Do you think this is a good turn-around story and a buying opportunity, or would you be cautious on the stock right now?

Thanks very much!

Anna

Hey Anna,

Thanks for your continuing support.

This will be the eighth time I have examined the case for Research In Motion Ltd., also known as BlackBerry. The first was on Aug. 9, 2010, when the shares were trading for $54.93. The last post on this stock was on July 27, 2012, when the shares were trading for $7.05. The research conducted in 2012 indicated that the stock was not for the faint of heart, but if investors had an appetite for risk that it looked like a good time to buy. The basis of the analysis were the signals generated on the six-month chart indicating that a trade was setting up.

The turn took a bit longer to develop but by September of 2012 the stock made its move and started an advance to the 52-week high of $18.49 on Jan. 21, 2013. But that was as good as it got. The shares have been pulling back as the introduction of the new operating system and hardware in the United States drew a lacklustre response. The company has introduced its newest device (the Z10) in Canada and will be rolling it out globally in the near future.

In response to your question about averaging down, I do not recommend it. You would be better off looking for a new opportunity as opposed to continuing to chase a stock that has already failed to meet your needs. If for no other reason than straight diversification. You asked about confirming the bottom and I think that we can say that the rock bottom was hit in September of 2012. The only question is if we have to retest it! Your question regarding a break above its multi-year downtrend is again a matter of going back to the move off the September lows, so yes it has.

Another run at the charts will better inform my further comments on BB.

The three-year chart illustrates the trend reversal that started in September and the pullback off the 52-week high. What we can observe at this point is that the uptrend that started in September has been breached and the stock has been struggling to hold support along the 50-day moving average.

The six-month chart shows the selling that has come in since the stock met resistance at $17.00 in March. The line of support that BB has to hold is $13.00, if not it will retest $12.00. Currently the RSI and MACD continue to indicate that sellers are still in control of the market. The shares have been consolidating with support at $13.00.

You wanted to know if BB is a good turnaround story. In a very competitive space with Samsung and Apple taking names and handing out bad beats I would say not. If management has a new thing that will help them leap ahead of the competition they had better get it into the market as soon as possible. You wanted to know if I would be cautious and to that I would advise that I am always cautious. Especially in the tech sector.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.