Well Lou, is it time to take a look at RIMM…..I’m thinking a double bottom could start to form over the next few months….or should we start slow dollar cost buying.

Jay

Hi Jay,

This will be the sixth time that I have run the charts on Research in Motion Limited (RIMM NASDAQ). The first time I looked at the stock was on August 9, 2010 for Kurban.

The shares were trading at $54.93 and it was advised that the company was playing catch up with the competition and that the stock was in a downtrend that started in 2009. It was also cautioned that anticipating a bottom can result in the unkindest cut of all, finding new lows with personal cash. Unfortunately that was precisely the right call.

The last time I examined the case for RIMM was on October 21, 2011 on an assignment from Bob. The shares were selling for $22.61 and the analysis suggested that the stock was neither a buy nor a hold. Again the right call but no less painful for investors who continued to hold.

Let’s take another run at the charts and see if the worse is behind RIMM.

The three year chart is one of those rides that make me nauseous just looking at it. When you are holding a stock in a free fall you have to gird your loins and sell.

The downtrend that started in March of 2011 is still in place as is the death cross that formed in May. Clearly there have been plenty of opportunities to sell and preserve capital.

You asked if a double bottom could form in a few months. It is possible but I would want to see it and not anticipate it. The failure to hold support at $20.00 is a real concern.

The six month chart illustrates the bounce off of the December 20th low of $12.45. Most of the advance was fuelled by takeover rumours. When the management changes were announced January 23, 2012 it did nothing for the stock.

At this point I have to maintain my stance that the risks outweigh the opportunity. Until we get a double bottom or some other indicator that the selling has abated and buyers want to own RIMM I would not be stepping into the fray.

Confirm the bottom, don’t anticipate it.

Make it a profitable day and happy capitalism!

Good morning Lou,

Interested on your take for RuggedCom Inc. (RCM). They just reported excellent results but stock hasn’t budged & volume very low.

Thank you,

Patrick

Hi Patrick,

Thanks for the assignment. RuggedCom Inc. (RCM TSX) provides networking  hardware and software that is designed for use in harsh environments. Over 60% of their sales revenue comes from electrical power companies that use their systems to better monitor the operations of their substations. They are also growing sales to railroads.

The research indicates that the company has a market capitalisation of $263.4 million which puts it on the cusp between microcap and small cap status. There are just over twelve million shares outstanding and over the last three months the average daily volume has been 14,423. Over the last 30 days of trading volume has exceeded the average only nine times. What I would surmise from the low volume is that the stock is closely held by management and patient investors who have been in profit since the IPO at $13.00 back in 2007.

Another factor to consider are the earnings. RCM has missed the street over the six quarters going back from Q3 FY11 and is scheduled to report Q1 FY12 on August 05, 2011. The forecast is for earnings per share of $0.20. The last thing to consider is the aggressive multiples on the stock. It has a price earnings ratio of 43 which implies anticipation of expanding growth. Clearly the company has been growing its sales and profits but perhaps not to the total satisfaction of investors.

Lets examine the charts for guidance as we move forward.

The three year chart illustrates the resistance $22.00 that RCM has failed to break above since August of 2009. When the company reported its Q4 results May 25, 2011 the results were not sufficient to push through the barrier.

The six month chart outlines the resistance at $22.00. The MACD signalled the sell off that started in mid February that took the stock down to $18.00. It also signalled a buy in late March that took the shares back to $22.00. Not a bad round trip for investors who caught the ride. Currently the indicators are flat.

The next flex point will come in August with the Q1 results so put that date on your calendar. RCM is a stock that is tightly held by patient investors and which has a small number of shares outstanding. The low volume of trading is not a factor given that reality. If the shares make a sustained move above $22.00 it can run to $26.00 without much resistance.

Happy Capitalism!

Hi Lou,

What do charts say about RIM-t short term(Jun 2011),medium term(end2011) & long term (3 yrs).

Thanks,

Muntazir

Hi Muntazir,

The last time I published a post on Research in Motion Ltd. ( RIM TSX) was on March 11, 2011 for Steve. At that time it was noted that the Q4 results were scheduled for release on March 24, 2011 and that it would be prudent to proceed with caution around that flex point. In addition the momentum indicators were not generating a reversal of the downtrend that the stock was in.

With the past as prologue let’s review the charts for some guidance as to potential outcomes for RIM.

The three year chart tells the tale of a stock that has been in a downtrend since 2008. There have been opportunities to catch bounces for profitable trades but as far as a sustained uptrend that has not materialized. The current leg of the sell off started in March when the stock hit resistance at $70.00 and then missed the expectations set for their Q4 results reported on March 24. 

After the Q4 release the stock headed south and got a tentative grip on support at $50.00 but then stung investors in late April of 2011 with lower guidance for Q1.

The six month chart provides a better view of the current action in the shares of RIM. There are a number of features worth noting. In late February, 2011 the MACD and RSI both generated sell signals.The stock tried to move up in March, 2011 but met resistance along the 50 day moving average and then got side swiped by the release of their Q4 results.

At the present time there is a death cross that has surfaced and the stock is grasping to find support. The RSI indicates that the shares are oversold so perhaps some buying will come into the market for RIM. Unfortunately the MACD is not suggesting that the selling has concluded.

Regarding your questions on the prospects for RIM. I would never offer a three year forecast for anything. In most cases its a folly and with the speed of change in the technology sector its insanity! When I look at the corporate action calendar for June 2011, the company is sceduled to release Q1 results on June 16. The company has already warned on the quarter so in the best case scenario its probably a matter of better bad news than truly good news.

The trend is down, the momentum indicators are neutral at best,and  the street is cutting forecasts and ratings. Not  great motivation to be a buyer. Be patient and wait for a move to the upside.

Happy Capitalism!

Hi Lou:

I enjoy reading your comments. I cannot see selecting a security by technical analysis, but I see merit to using it with limitations to assist timing in and out decisions.

I made a tidy profit by buying AXX in March/06, and selling half in June/07. Axia Net Media tanked in the recession along with most everything else, but has not come back like the rest of the market. I’d appreciate your thoughts on holding or unloading the rest of my Axia shares. To me it still seems to have potential, but how long to wait ……??? If it means anything, I am a small investor, this commitment is very small, and I would put the cash into other stock.

I look forward to your input.

Thanks,

Jay

Hi Jay,

Thanks for the assignment. Axxia NetMedia Corp. ( AXX TSX) has been trading in a range for the last two years with support at $1.40 and resistance at $1.85.You should also make note of the thin volume that has been the tale of the tape. The average daily volume over the last three months is 28, 484. Yesterday the stock traded 2,100 shares.

You will not see a move higher unless investors are willing to step up and a measure of that intent is volume.  The charts will provide some guidance in helping you make a buy, sell, hold decision.

The three year chart at best indicates that AXX will retest support at $1.40 given the gap down in March of 2011. I looked at the quarterly reports for the company and made note that the entire enterprise generates less than $100 million a year in revenue and has a market cap of $98.23 million. Clearly we are talking a small cap player in the universe of broadband networks.

The six month chart illustrates the selling that is leading AXX to a retest of support at $1.40. Given the thin volume, small market cap, and the fact that you have already booked a profit on the stock I would suggest that you bite the bullet and get your money working more productively in another opportunity.

Happy Capitalism!

Hi Lou,

I’ve read some of your past items on RIM and I’m wondering what your thoughts are on RIM these days considering the volatility of the world market (read OUCH the last several days), iPad2 hitting the sales floor Friday, and RIM reporting quarterly earnings in a couple of weeks?

Thanks,

Steve

Hi Steve,

My last post regarding  Research In Motion Ltd.(RIM TSX) was on September 13, 2010  for Wayne. It was just a few days ahead of the release of second quarter results. At the time it was noted that given the sell off that had gripped the stock the best way to play RIM was to wait out the release of the quarterly results. I am a big believer of having the reporting dates for every company that you own or are thinking of owning on your action calendar. The flex point  represented by quarterly results will answer the question of direction for the stock.

 The better than expected results started the stock into an uptrend that saw it ride to $69.00 in February of 2011 from the lows of $45.00 in September of 2010. A better than 50% return in 6 months is not bad, but the key was to wait for the trend reversal to develop. Don’t look to catch a stock at the absolute bottom or sell at the absolute top. Its nearly impossible to accomplish. Get in a bit late and leave a bit early to reduce your risk.

The charts will provide better particulars that should be considered ahead of the next flex point.

The three year chart illustrates the bounce off the rock bottom in September of 2010 and the advance through February of 2011. However the advance has reversed and now the stock has been giving up some of its gains. What is also evident is that there is resistance at $70.00 that is hard to ignore. It should have come as no surprise that the advance would have had to muster up some great strength to get over that barrier.

The six month chart depicts the multiple buy and sell signals generated by the MACD and that it is currently not suggesting that buyers were going to take control of the market for this stock. In addition the RSI signaled the February top as it moved away from overbought territory.

At this point the best approach to RIM is to be patient. The prudent investor will want to see the indicators that they follow generating a buy signal. Currently the trend is down and we have the Q4 results scheduled for release on March 24, 2011.

Lets use the same tactics as back in September and wait for the rumours regarding Q4 to  become news. Even if the results are out of this world there will be plenty of time to catch the ride for a profit.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hi Lou,

Just wondering what’s been up lately with Cisco. It is currently trading at its 52 week low of $18.60 or so. The company has a strong balance sheet that should put it in good stead, they are ripe with cash, big on R & D and it seems the product they make is essential for future growth in the tech communications area. Is it just because they have had some wobbly leadership lately that investors have taken out the whacking stick? Where do you see it going from here?

Tony

Hi Tony,

One look at the charts tells the whole story at Cisco Systems Inc. ( CSCO NASDAQ). Its been range bound in a down channel for close to a year. The fundamental story about balance sheet strength, their cash position, R& D spending and their position in their industry don’t amount to a hill of beans. This stock has given up 35% of its value since April of 2010 and it may have more ground to lose.  

The three year chart depicts the grim story of a tech titan taking a thrashing. Draw a straight line from the top in April of 2010 to the $22.00 price spike in early February of 2011. That’s the upper resistance line of the channel. Next draw a straight line from the low at $21.00 in July of 2010 to the close at $18.68 on February 17 , 2011. That’s the lower support line of the channel.

As investors we need to be alert to changes in trend. The uptrend that took the stock to its April 2010 high was breached as we got into May of 2010 and its been oscillating in the down channel ever since.

The six month chart illustrates the two big gaps down that followed disappointing fundamental news released by the company. Quarterly earnings reports are flex points that investors need to be on top of. Publicly traded companies give investors lots of lead time as to when they will report their results. Make it a point to put those dates into your analysis. The next report for CSCO is May 11, 2011. Have a plan as to how you will proceed prior to that day!

The best case scenario for CSCO is a bounce off support at $18.00. If that doesn’t happen then look for support at $16.00. If it catches a bounce off of $18.00 anticipate resistance along the top of the trading channel. Until CSCO moved convincingly through the upper resistance of the channel the down trend is still in place.

MAKE IT A MASSIVE LONG WEEKEND  AND HAPPY CAPITALISM!

Hey Lou,
I was wondering if you could give me any more information on Netflix and how it looks as an investment.

Something that jumped out at me was the volume on Jan 27th. Now I have no idea what the volume means, however the volume on that day is 18.5 million which is more then double any of the other day. I was just wondering how I would go about finding out why that is the way it is.

Any info on this stock would be greatly appreciated.

Thanks Lou!

Kellen

Hey Kellen,

Thanks for the assignment. I have never looked at Netflix Inc. ( NFLX NASDAQ) as an investment but after looking at the charts I can honestly say I wish I had. The charts for NFLX are a perfect example of an ideal investment opportunity from a technical perspective. The charts say it all so lets get right to them.

The three year chart is a textbook case of a stock that has created a ton of wealth for investors that got on the ride and stayed in the saddle.  The first signal that the selling was over and that buyers we coming back to this stock was in late 2008 when a double bottom formed. You can see the two dips in October and December when this puppy was trading at $20.00. A double bottom is a reversal pattern that tells us that the sellers are worn out and that buyers will take control of the trading.

 Now you can see why I wish this one had shown up on my radar sooner. Ten baggers don’t come around everyday but when they do you want to back up the truck and load up! Further signals that NFLX was on an uptrend include a golden cross in February of 2009, and a break above resistance at $40.00 in April of the same year.

 In addition the stock tested support along its 200 day moving average in September of 2009 and again in February of 2010. A sure sign of buyer confidence.

The six month chart illustrates the buy and sell signals generated by the MACD.  In late August of 2010 a buy signal at $130.00 and a sell in late September at $170.00 are just two of several on the chart.

The event on January 27 , 2011 that generated volume of 18 million shares was the reaction to the quarterly results that were released after the market closed on January 26.  As an investor you need to know the dates when the companies that you own are going to report earnings. You need to use a site such as globeinvestor.com to get a handle on the information flow for the companies you own,are thinking of buying, or selling.

As far as how NFLX looks like as an investment. The trend is your friend until it ends. It looks like a case of buy high – sell higher.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hi Lou,

I held MTS but luckily sold it at $35 after concern that a significant reduction in its dividend was close at hand. I couldn’t understand why the board of directors would continue to pay a dividend significantly greater than MTS earns. The funds for the payout must be adding debt which merely adds to their difficult situation. Please comment and or explain. Thank you.

Jim, Ottawa

Hi Jim,

Good on you for selling before you found  new lows with your hard earned money.I last posted on Manitoba Telecom Services Inc. (MBT TSX) on April 7, 2010 for Flo. At the time she wanted to know if MBT would see its way back to $42.00 in the next year  given than it was trading at $31.5o when she wrote. Unfortunately the stock continued the downtrend that has been in place for three years and has a lot of work to do if its going to stop the pain.

As to your question about the dividend, management in the telecommunications sector typically will do whatever they possibly can to maintain  their dividend for fear of spooking the street and trashing the stock. There have been a number of cases where companies strap on debt to maintain their dividend.

On December 30, 2010 Maher Yaghi, from Desjardin Securities, noted in a piece posted on globeinvestor.com that in his view there was a red flag on the shares of MBT. His analysis indicated that MBT was paying out 99% of its free cash flow to support its dividend and that there wasn’t any room for them to increase their distribution to common shareholders.

The charts will provide a better view of the risks and opportunities associated with MBT.

The three year chart tells the tale of betrayal that has been in place since 2007. There is a serious downtrend in place and every attempt to breakthrough has failed. In early May of 2010 the company reported lower Q1 earnings that saw the stock melt through support at $31.50 taking it to the August lows of $24.75.

The six month chart depicts the bounce off the lows to $30.00 but the resistance along the 200 day moving average is as hard as a steel beam. Currently MBT has to hold support at $28.00 if it has any hope of a recovery in the short term. 

When I see charts like this I always ask myself why risk my money on a stock that has done little for its shareholders? I still have not found an answer to that question.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hi Lou,
What is your view for Shaw Comm (sjr.b).
Thanks

Monty
Richmondhill,Ont

Hi Monty,

Shaw Communications Inc. ( SJR.B TSX) has been dealing with  competitive pressures in the cable and telecommunications sector that has seen new entrants  come into the market and renewed vigor from existing carriers.In addition the company has to integrate the television assets it acquired in the purchase of  bankrupt Canwest Global Communications. Finally  SJR has to manage succession issues as Jim Shaw stepped down earlier than expected from his post as CEO making room for his younger brother Brad.

The biggest risk in my view is the acquisition of the Canwest television stations. The specialty cable stations that came in the deal are by far the better piece of the package given that they earn fees from cable operators as mandated by the Canadian Radio Television Commission. Its always nice to own a regulated monopoly. The over the air network that lives and dies by the sale of advertising looks like a broken business model that needs some serious cost cutting to align itself with the reduced advertising revenue that has been the norm since 2008.

The charts will provide some indication as to trend, support, and resistance into 2011.

The three year chart illustrates the choppy trading in the stock within a range. Support since 2008 is visible at $18.50 with resistance at $23.50. SJR.B has cycled through the range three times since March of 2008. Not a bad return of 27.02%  on a bottom to top ride.

The six month chart depicts the sell off that started in late October as Jim Shaw announced his retirement and the Q4 results missed the street. It is now holding onto support at $20.50 along the 200 day moving average. Both the RSI and MACD seem to be signalling a move off support but don’t expect a break above $23.50. In order to get the stock moving on a new sustained uptrend it will require a series of quarterly reports that beat the street and evidence that its chewing down on the Canwest acquisition.

What you have to like about SJR.B is the dividend which at these levels is producing a yield of 4.3% .Not bad in today’s environment. Its always sweet to be paid to wait for the sun to shine.

Happy Capitalism!

Hi Lou,

What do you think of TNDM-Q? They’ve just started to turn up do you think this can be sustained?

Thanks, Brett

Hi Brett,

Thanks for the assignment. Neutral Tandem Inc. ( TNDM NASDAQ) provides tandem services to telecommunications carriers so that they can interconnect their networks without going through the incumbent local exchange carrier. The end results are lower costs and faster speed.  The charts for TNDM are generating some interesting signals that are worth investigating.

The three year chart illustrates the struggles that the company has endured since it topped out at $34.00 in September of 2009 and began the big slide to $10.50 in August of 2010. When I was speaking to the Greater Dufferin Home Builders Association this week I spoke to a chart very much like this one and made the comment that you don’t have to ride it to the bottom like Slim Pickens in Dr. Strangelove.

The long tenure of the decline offered lots of opportunities to get off the ride and preserve capital. It took just over a year to grind shareholder value down by 69%. The death cross in October of 2009 was another sign the worm had turned and the hope of a quick reversal of the downtrend was false. At that point the loss would have been 29% from the high of $34.00 but that would still have been a bargain compared to the rock bottom of $10.50.

But that was then and this is now and right now the downtrend is broken and there is a double bottom in place. A double bottom is a reversal pattern that signals that the sellers have capitulated and the buyers are circulating.

The six month chart provides a better view of the double bottom and the move through the 50 day moving average and the 200 day moving average. The MACD signalled the change in momentum in mid September which carried the stock from $10.50 to $14.29. Not a bad run so far.

TNDM has moved pretty far pretty fast which would suggest that it might have to take a breather and slow down the pace a bit. There is  some fairly strong overhead resistance at $16.00. After that resistance comes in again at $18.00 and then at $20.00.

TNDM has made the first move breaking the downtrend and advancing as aggressively as it has. From the technicals it appears that TNDM still has some gas in the tank so if you like the story then buy a ticket for the show.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!