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A RIMM Turnaround? 9.28.2012

Before diving into the fundamentals, a technical prospective is needed. Last quarter’s earnings gap sits from $8.87 to $7.98. 61.8% of this gap has filled during the August 6th -10th pop on rumors and speculation of IBM and RIMM getting together. This is naturally following the RIMM/Samsung and RIMM/MSFT past rumors; and considering RIMM’s 17% short interest, why not float a rumor out there for a good pop. Besides the unfinished gap fill, the rumor-powered prior high sits also near $8.47; so unhappy rumor buyers who are still stuck with stock may offer out supply at these lofty levels (lofty naturally being a relative term, especially for RIMM, as it has been sitting near lows).

Do the fundamentals back up today’s gap? In short, it depends on what RIMM story you subscribe to. RIMM has put forth many products that were intended to be ‘game changers’ but just ended up falling on their face. Wall Street seems to have a bad memory for prior flops include the extraordinarily hyped up Playbook Tablet. According to former CEO Lazaridis, “the BlackBerry PlayBook solidly hits the mark with industry leading power, true multitasking, uncompromised web browsing and high performance multimedia”…too bad it did not hit the mark in the sales category; with unit sales dropping to 130K this quarter. To put this figure into prospective AAPL moved 17 million iPad units in their most recent third quarter. Now CEO Thorsten Heins said confidently to investors that he believes BlackBerry 10 will take market share. If the new BB10 is anything like history is will not be good for investors. It can be argued that even if RIMM comes out with a superior phone it will not gain traction for the AAPL & GOOG movement is too powerful to stop, and they do not have the apps or ecosystem to back it up.

The chart below shows the annual percentage change in revenue, SG&A (Selling, General and Administrative Expenses), research and development, operating income, and finally cash and short term investments. This chart exemplifies RIMM’s problems. RIMM is burning through cash and not using it wisely, for the devices seem to always lack traction.

While all this is well and good, the trade could be something completely different. RIMM is a perpetual M&A rumor, but it is also difficult to stay short a name trading at $8.00 or a $4.2 billion market capitalization with nearly $1.7 billion in cash and short term investments, unless you have a lot of conviction. So maybe the best trade is no trade at all.

E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com

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Associate Option Battle 9.27.2012

Associate Jim’s Trade

Trade: Selling 15 WAG Oct 37-38 Call Spread for $0.35

Risk: $65.00 per 1 lot

Reward: $35.00 per 1 lot

Breakeven: $37.35

Notes: The stock has sold off the last 3 times after earnings and I don’t think it will break its 52 week high of 36.85

Associate Alex’s Trade

Trade: Buying Weekly AAPL 685-695-700 broken wing Call fly for $1.15

Risk: $115 per 1 lot

Reward: $885 per 1 lot

Breakeven: $686.15

Notes: I like this trade because when Apple makes big moves, it generally follow the same trend for a day or two after as we saw with this dip. I only need Apple to move up a third of the price it moved today to break even and if Apple explodes upwards past the upper wing of the butterfly, I will still make money, though less than if it stops at the body.

Alex has a master’s degree in economics from Suffolk U.

Jim has a BS in Finance from UIUC.



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Earnings Play of the Day FINL 9.27.2012

Out of the last 4 earnings reports the stock rallied twice and sold off twice. The near term at the money straddle is indicating a move of around $2.35 (10.9%). The stock has moved on average 11.3% on earnings over the past 4 quarters  This gives us an upside measure move target of $25.05 and a downside target of $20.35. 

Trade: Buying the Oct 22.5 Straddle for $2.35

Risk: $235 per 1 lot

Reward: Unlimited

Notes: The straddle is implying a move of 10.90% but the stock moves on average 11.30% after earnings.


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Pregame the Harvest Moon with a Little History 9.27.2012

Below is a series of charts that display the trading day on or before the harvest moon. The 2008 harvest moon indicated a reversal in a channel, as it came to test the lower end, bounce, and then set up for a perfect sell into a 30% decline in the S&P 500 E-mini future. The 2009 harvest moon confirmed a textbook trend-line; which from the anchor point lead to many higher lows. In 2010, it was a strong confirmation candle, overtaking the prior day’s high, into a strong trending market with little pullback. And finally the last harvest moon, in 2011, was in a consolidation pattern bottom, during the USA debt downgrade fiasco last summer, but did serve a significant low, both in line with others and at horizontal support, reversing price up and throwing it 6% higher within a few days.

It is obvious that this is a significant event in technical analysis, but it is vital to be aware with current patterns prevailing in the chart.

E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com



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Morning Rage 9.27.2012

Continue to watch developments in Europe and expect violent protests to continue while unemployment remains unstable in Southern European countries. For now, markets are showing a positive consensus on data with all US indices futures up around the 0.40% mark. Crude oil futures are up 0.89 and metals futures are positive. Gold futures gained 4.60, silver gained 0.2, and platinum gained 10.10 points.

Nike (NKE) and RIM (RIMM) will be releasing earnings reports before the market opens this morning. I expect RIMM to have a negative earnings report, as the company reports it will continue to show signs of weakness in the near future, but they may bounce back on any positive subscriber gains or hopes that the BlackBerry 10 could become a top phone in the market. Analysts are expecting that Nikes sales grew by $35 million, but that profit will decline $0.24 a share to $1.12.

Keep track of the associate daily trade pick on the blog.

Alex Kalish has a master’s degree in economics from Suffolk U.