This Stock Has Doubled in Three Months; Time to Short?

This Stock Has Doubled in Three Months; Time to Short?

UPDATE: This post was originally published on 12/12 behind the password protected firewall; given the material decline today (12/21), the bulk of profits from the trade have accrued, hence we are willing to release the post publicly now


Never put out a high-conviction call on this site about RIMM – all our short work was done in the mid-to-low teens in 1Q/2Q12 before the site went up.

That said, we did have a post in July right here that suggested after it had been crushed by ~50% in a few months down to $7.50 it had just filled a big gap and a big move was about to occur, which, with the recent double from $6, has indeed happened.

Regardless, why has RIMM gone to $13+ from ~$6 in three short months, netting  a double and then some?

Fundamental or technical reasons?

If somebody said fundamental I’d tell them to look at the chart below whereby when RIMM was trading at $6 in Aug/Sep it was sitting atop a huge long-term support line (1) and to a lesser extent, line (2).

But that’s hindsight.  If you had covered your short there or bought it, what would you be doing now after the double?

I’d be looking for short opportunities, especially given the fact that RIMM now faces one of the uglier, more formidable tests of resistance I’ve ever put together in a chart for this site.

In fact, it faces five major resistance points including lines (3)-(7), all at the same time and all of which run to ~$13.65-$14.00 in terms of trade execution.

Not quite sure how one could conspire to dream up a better set of confluence resistance points if forced to.

As such, I plan on shorting and/or buying puts at this resistance in the very near-term.  I prefer puts as being outright short stocks can be very tricky sometimes in terms of risk management.

If the stock takes out all of this resistance by a solid margin, chances are high that the short thesis in this post was incorrect.

2012-12-12 RIMM - Weekly