Buy or Sell RIMM? It Depends on Your Timeframe
07/02/2009 12:01 am EST
I was taking a look at Apple (AAPL) and Research in Motion (RIMM) and spotted something I wanted to highlight to you. Ino.com recently released a video entitled “RIMM vs. AAPL: An Update,” which got me looking at both of these charts, and that led me to a confusing conclusion.
If you take a solitary look at RIMM’s daily chart, you’ll probably come away thinking RIMM is about to plunge lower. However, it you take an isolated look at RIMM’s weekly chart, you might walk away and want to put a long (buy) position on immediately.
So which is it? And why do we get such a different result? Let’s look closer:
Looking at the daily chart, we see a technical structure where price makes a new high on negative momentum and volume divergence.
As price peaked, we formed a clear reversal candle at the highs and volume has picked up steadily as price fell, which confirms the lower prices.
With the volume surge and new momentum low, odds favor lower prices yet to come, particularly given that price pulled back into overhead resistance and can’t seem to rise above the 50-day EMA at $72.00. This would mark a great area for bears to get short and place a stop above that level, if not above the 20-period EMA at $75 and perhaps play for a trend reversal.
So you would walk away aggressively short if you looked only at the daily chart, let’s now raise our time frame to see the weekly structure.RIMM Weekly - Bullish:
Again, let’s approach this as if we’ve not looked at the daily time frame.
We see price making a steady swing up to new 2009 highs, which formed on a new momentum high, and price has pulled back sharply to the confluence zone of the rising 20- and 50-period EMAs, though the 20 is lower than the 50 and price only recently crossed above them.
With last week’s Doji and that of the current week, one might be jumping to put on a long trade here in order to play for a possible bounce from these confluence levels and play for a new high yet to come. The stop would be around the $67 area with a minimum target of $85, if not beyond $90.
So Which Is it?
Short off the daily chart and hold your stop above confluence EMA resistance? Long off the weekly chart and hold your stop beneath EMA (semi) confluence support?
I’m merely highlighting why it’s ineffective to do analysis on a single timeframe in total isolation. You’ll sometimes get scenarios like this that make your head spin.
It’s probably a better idea—unless you’re aggressive—to wait for a break of one of these levels and then go in that direction. Price can’t stay here forever. It has to break one of the two confluences.
By Corey Rosenbloom of AfriadToTrade.com