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What to Watch for as Research In Motion Breaks Out


One should keep their friends close but their stops closer.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

Last week, I got an opportunity to meet old friends and to forge new friendships in an EFERMA (Eastern Family Economics and Resource Management Association) conference. Fellow Minyans are aware of my passion for teaching our children about the Minyan mission of earnings, savings, investing, and giving.

Imagine my pleasant surprise when I got a chance to witness an entire community of elite educators doing that and so much more! This team includes members of the President's Advisory Council on Financial Literacy, renowned academicians from several universities, and several representatives from The Federal Reserve; they were all there with one goal in mind: How to simplify the obtuse concepts of financial literacy, back them up with empirical research, and spread these ideas all over the nation! Over the next few weeks, I plan to share some of their research and references.

Stubbornly persist, and you will find that the limits of your stubbornness go well beyond the stubbornness of your limits.
-- Robert Brault

Meanwhile, things have been equally exciting in the financial markets. We've taken a technical look at the possibility of breakouts in several stocks (See the following buzzes: Daring to Dream GS (3/2), GOOG's Trading Range (3/2), BA setting up for launch? (2/16), and Research In Motion (RIMM) (2/18). Goldman (GS), Google (GOOG), and Boeing (BA) obliged us by reaching their stated technical targets on March 5 and thus, those trades, as they were laid out, stand fulfilled.

Let's take another technical look at Research In Motion, which just treaded water after my initial spotlight on February 18, but is breaking out on extremely heavy volume after getting an upgrade this morning. Often, when news hits at a technically ripe area, it can lead to explosive moves. A follow-through to today's advance can lead to the first initial target close to 80 and eventual target in the low 80s.

click to enlarge

Many times, a stock retreats to the area it broke out from and offers a second-chance buying opportunity. In this case, it would imply a low volume retreat to the vicinity of $71.

Earnings are due on March 31. I always feel that one should keep their friends close but their stops closer! In this case a stop can be set at the five-day low, or at a fixed percentage or dollar stop loss, depending on the risk profile. The technical stop would logically seem to be at either a breakdown on heavy volume (due to some unexpected news) or at a close below 20-day moving average (currently at $69.9).
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Position in GS and RIMM

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