Shares of Canadian smartphone maker BlackBerry Ltd (BBRY) had a volatile trading day on Friday after the company reported a mixed third-quarter earnings report. BBRY stock has offered some good opportunities for traders as of late but in the bigger picture for investors remains in a rut and stuck in a multi-year consolidation pattern as the company is working on a turnaround plan.
With defined support in place, active traders and investors could look to trade the stock from the long side in coming weeks.
Specifically last Friday morning before the start of trading BlackBerry came in with earnings per share of 1 cent, beating the the estimated loss of 5 cents on the back of continued cost-cutting measures. Top line revenue for the quarter however stood at $793 million and well below analyst estimates of $931.5 million. Thus, on a year-over-year basis, EPS were higher by 101% while sales fell 33%.
The company is attacking the stiff competition of the smart phone business with new devices that it hopes will, among others, regain the hearts of old BlackBerry fans.
Looking at the multi-year weekly chart of BBRY stock, we see it’s big ‘demise’ of recent years still has it churning near long-term lows. If we look a little closer, however, the bulls have hope as momentum as represented by the Relative Strength Index (RSI) bottomed in 2011 and has since formed a series of higher lows, while price continues to flatline.
This is what we refer to as positive divergence and more often than not momentum wins out and price ultimately pushes in the direction of the RSI. Also note that the Bollinger Bands (blue moving averages) on the weekly chart are not at historic tight levels, which does speak to better chances that the stock will begin to move in a more meaningful fashion again in the near future, although the direction is unclear.
On the daily chart note that the stock continues to hold its late 2013 uptrend line. Last Friday after the earnings report the stock traded as much as 9.5% lower in the early going, but by day’s end managed to erase most of those losses with an impressive intraday rally, closing the stock down only .8%. Volume on the day spiked as well as the stock bounced off the aforementioned 2013 support line as well as off its 200-day simple moving average (red line).
While BBRY stock still has to prove itself better for longer-term investors, active investors and traders after Friday’s bullish reversal have a clearly defined line of support that they can lean against on the long side in the low $9 area. On the upside the stock has room toward the $11-$12 area, i.e. the November trading range.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
