Is this a resurgence for RIMM or a fleeting short squeeze for the Canadian calculator?

Leaked Blackberry 10 Photos

Leaked Blackberry 10 Photo

Since being left for dead over the summer, shares of Research in Motion (RIMM) have quietly made a series of higher lows and higher highs during the past two months. However, with RIMM’s shares popping another ~13% this morning now is certainly not the time to begin chasing the stock.

The recent bottom and subsequent price action in RIMM is quite instructive, not only for technical analysts, but also for those who study market psychology and the psychology of expectations. As the last holdout “value investors” dumped their RIMM shares in disgust, an enticing investment opportunity arose: Expectations were so low at RIMM’s September low of $6.22 that any positive news whatsoever could have easily triggered a 20% rally.

Of course, one could have made similar comments multiple times during RIMM’s 90%+ decline from its most recent peak in February 2011. However, the recent bottom in RIMM had numerous bullish technical divergences which when combined with unanimously bearish sentiment (even the value buyers had capitulated throughout the summer leading up to the September bottom) offers technicians an instructive example of how a bottom can form in one of the most unrelenting downtrends in recent market history:

Click to enlarge

Weekly bullish engulfing candlesticks printed at or near new multi-year lows are always worthy of extra attention – RIMM’s price and volume action during the last week of September was exceptionally noteworthy:

While the RIMM charts offer a great deal of instructive material for technicians, this is all in the past – what about the future?

With major resistance less than 10% above current levels and the first support level of any significance more than 20% below current levels, RIMM is no longer a compelling risk/reward proposition for new longs.

Considering that RIMM’s dominant long term trend is still clearly lower and the fact that the success of the company’s new line of products is far from a sure thing, I believe there is no hurry to rush in and buy RIMM shares. Instead it is probably best to wait for the chart to consolidate its recent gains and set-up better in the form of a bullish flag/pennant.

To answer the question posed in the title – even if Research in Motion’s new product lineup (scheduled for launch in February/March 2013) does turn out to be a big success, investors should have plenty of better risk adjusted entry points in RIMM shares over the next few months.