The RIM Reality

Missed it by that much...

The Good: Q1 revenues up 107% to $2.24B. Net income was $483M, or 84¢ a share. Added 2.3M new subscribers to existing 14M. Ramping its investments to capture greater market share. RIMM shares have been up up 70% in the past 5 months.

The Bad: The Street expected $2.27B revenues and 85¢ a share . Operating costs rose 22%. Weak guidance, lowering profit forecast from 90¢ to between 84¢ /89¢ per diluted share. A ramp of capital expenditures from the $190M Q1 to $250M over the next two quarters.

The Ugly: This $150 bloated stock is now a $120 stock. A much hyped Horseman cannot report a lukewarm, inline earnings report. The Street will punish that and it did, by taking RIM to the woodshed Thursday. For those of you who've been following my blog, you know I've been trading in and out of RIMM weekly. And so here is where reality and P/E deflation finally begin to set in. RIMM has been up a dastardly 70% over the past 5 months. The premium for a company that has such a narrow niche has just started its discount. And India, one of the most population dense markets in the world may ban them due to regulatory restrictions . The handset market has always been an overcrowded raft in a market and economy that is dehydrating fast. Someone has to be pushed off.
And with the 3G iPhone supporting corporate email and and adding apps, the RIMM ship seems to have taken on a cruise missile - to its hull. The Blackberry Bold delay could be the next hit and may bring down this ship to the double digits fast. I've had little positive to say about RIM on this blog since it's inception. I'm neither bear nor bull when it comes to RIMM. Just a trader who is obsessive about being on the right side of the trade. Yesterdays earnings should have sent a depth charge (okay, no more naval metaphors, I promise) to RIMM Bulls and make evident the RIMM Trader's mantra that I've been repeating all year: RIMM is a horrible investment but a fantastic trade.

Trade Signal of the Day: Sell


Disclosure: Covered remaining shorts/In cash


Quote of the Day
"He will win who knows when to fight and when not to fight." - Sun Tzu, The Art of War

Video of the Day:
How Cash Escaped RIM

Cash vs. RIMM

In Cash We Trust, In RIM We Don't

Fundamental Analysis

RIMM is valued at $74B, with sales of only $6B- valued at 12x sales and 58x profit. Investors are paying more per share than the company will earn in its lifetime. What do earnings mean to a outside shareholder? (Really nothing) Will there ever be any ROI? Will a shareholder ever receive a meaningful share of profits from RIM? NO The company showed a profit of $1.3B for the last 12 months, at that rate it would take 58 years to earn $74B (58yrs X $1.3B =$74B). A simple example of the overvaluation: Would you buy a company with sales of $100,000 for $1.2 million, or would you invest that at 6% and earn $72,000 per year (almost as much as sales)? If RIMM had a net income of $1.3 B per year it would still take 58 years to earn what the company is valued at, and that would be after tax dollars. Even if profits increase it would still take many many years to earn that valuation. What can an outside shareholder expect to receive from the company? Will they ever share in the profits? Can RIMM afford to pay a meaningful dividend? A 5% dividend would total over $3.5B or about $5/sh, something the company could not afford, as it is almost as much as their sales. Would anyone buy RIM for $74+ billion in cash, they could invest that $74B @6 % and earn $4B/yr? RIM is quite a conundrum here but more importantly a textbook example of the Law of Diminishing Returns. P/E deflation has seem to have started and the short trade has been in effect since the failure on the double top. The idea that future growth justifies a 73 P/E is just plain ridiculous. Longs who share this thesis fail to understand the overall overvaluation of P/E's of the stock market as an aggregate. Until this is understood, then longs can keep wearing those same blinders from 2000. Just be nimble enough to take them off in time (most traders won't). True RIMM is growing sales/profits by 100% but this is not sustainable and the Street is smelling this. So the long thesis is correct when they say that RIMM valuation is justified RIGHT NOW because they are operating "within the bubble". It is granted that RIM may raise guidance soon but this will not outweigh a breakdown in the NDX this week. Note that the broader index is always stronger than any specific sector. Despite the moneyflow into tech that is currently keeping this sector afloat, the line of least resistance right now is still down. With earnings over 2 weeks away (an eternity) for RIMM, we may have to see RIMM taken down much further before we see the earnings runup. The time to honor this valuation bubble is coming to an end...fast. Swim upstream if you prefer, but like spawning salmon, only a few make it while thousands don't...

Technical Analysis

Many shorts were shaken last Thursday but cooler heads noticed that RIM was not able to close over the 20dma that session. A gap down Friday saw a breakdown in the bullish channel on decent volume for those shorts who did not panic. RIM has retraced it's previous gap-up from last month. The last 3 sessions formed an evening star on the candles and also bounced off the 61.8% retrace of the top. This all makes for a very bearish chart setup. Given the selloff in the broader indexes, RIMM is now technically set up for a climax sell off. A break of 130 support and this may test the 50dma (127.50) intraday.

Trade Signal: Neutral

Disclosure: In Cash

Quote of the Day
"After logic is exhausted, then the trader must rely on instinct. There is no oscillator for that...” - Cash (on staying short last Thursday despite the pain)

Video of the Day
RIM Lost, They Just Don't Know it

Legal Disclaimer:

The content on this blog is provided without any warranty, express or implied. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS AND OPTIONS. The author may have a position in any company or security mentioned herein.Actions you undertake as a consequence of any analysis OR opinion on this site are your sole responsibility.:

On Vacation Until May 28

Relax and Have Some Fun!



Over the next few days I will be on vacation with my family. Along with some golf, beach time, and plenty of barbecue. Don't forget to enjoy the journey folks. The markets will be there when you get back. Have a great weekend!

Monkeys and Bubbles

RIM's next product release

Alan Greenspan said he did most of his thinking in the bathtub. He once stated that his "Irrational Exuberance" speech was inspired in the tub. It's now apparent that he couldn’t see the housing and stockmarket bubbles because his glasses were steamed. As with all larger bubbles, they usually break into smaller bubbles. One of them is occuring in the smartphone industry in the ongoing pissing match between RIMM and Apple. With the announcement of Bold, the table is set for another interesting battle between RIM, which dominates enterprise market, and Apple, the teacher's pet in the consumer trade.
Both are eyeing each other's market share, and they go tit for tat with product releases. Research In Motion is planning to take Thunder Road in its battle with Apple for smartphone users. I have always felt that RIMM has "small man's disease" and knows that Apple is the big player and spend more time reverse engineering Apple products than vice versa. How else can one explain abandoning the keyboard, which is the prime signature of their devices and design advantage over the iPhone for the practical enterprise user. Imitation rarely ends in innovation, just look at the Commodore 64. Somethings should never be changed when it comes to core design, especially when they are not broken. We know how the Street deals with overvalued companies their inflated PE's. The Street giveth and the Street taketh away. In RIM's case, then question is not if, it is when.

Post Mortem on my RIMM Trade

As many of you know, I have always been transparent in my life as well as my portfolio. This week however, I took a big hit on my May options trade being short RIMM last week. I'm deep underwater as I went high beta on my portfolio and shelved the risk/reward metric in place of pure speculation. I diverted from the risk controls laid out in my trading plan and suffering quite a drawdown. My thesis about RIMM is still intact but partcipating in this market right now is more about timing than fundamentals. The market cares little about your ego or your need to win. I'm looking forward to recharging, recapitalizing, and spending lost time with my family whom I have done a great job of ignoring. I will return to trading next week as I believe this bull wave is coming to an end very soon.

Trade Signal: Sell

Disclosure

Short RIMM

Quote of the Day
“There is nothing like losing all you have in the world for teaching you what not to do." - Jesse Livermore

Video of the Day

Crucial Times (Courtesy Jrbaggs)

Legal Disclaimer:
The content on this blog is provided without any warranty, express or implied. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS AND OPTIONS. The author may have a position in any company or security mentioned herein.Actions you undertake as a consequence of any analysis OR opinion on this site are your sole responsibility.

Are RIMM and Tech Broken?

Don't Bust My Berries

Are You Not Entertained?

A Canaccord Adams analyst raised his price target on RIMM to $190 from $180. When it pulled back last week , he told clients to buy on the weakness (the bait). RIMM then popped Thursday on the Brightpoint agreement and the announcement of integration with SAP AG enterprise applications (the hook). Retail buyers jumped en masse sending RIMM up Friday as well. Gold stars to the analyst. Now over last weekend, he states to expect some volatility since RIM not only has a large following among retail investors, but also to hedge fund shorts.
His disclaimer:

“What we heard in the last two weeks [was that] some hedge funds had put on meaningful short positions against RIM and long Apple (AAPL), and I think that caused a lot of the volatility.” (the release)

The dichotomy of this statement is that it is TRUE. The promotion being made here is that the retail bids will outweigh the hedge fund action. They won’t (the catch). Canaccord has a history of making oppositional calls so the retail public will take the other side of the bet. Now hedge funds will force RIMM down beyond longs' pain threshold before RIM’s annual capital markets day [CMD] meeting. Smart money will pick RIMM up on the dirty cheap later this week because May 11 is an eternity for this stock from a traders perspective. So investors who jumped in on the pullback last week will feel the pinch of this trap and/or get an opportunity to get in lower. Share price will rise during the CMD meeting as it historically does, so they will get a boost up from that, but now only from a high entry point (the throwback). And that will provide many good opps for funds to take investors on a ride. This is truly why analysts exist: oppositional promotion.

Technical Analysis of NDX

(click image for TA details)

A potential hammer reversal pattern on the NDX Friday at key resistance levels. Crudely referred to as a "gap and crap". So anything below the closing print of 1981 or a gap down today will validate the cycle pivot from Friday. For those of you who doubt TA, funny how the Yahoo deal gets washed out as the broader index has provided a technical setup for a drop in the DOW Monday. Why is that important? Because 75% of stocks move in tandem with the market averages. And 50% of an individual stock's movement is related to its sector. Sure it can buck the trend, but the line of least resistance right now is DOWN. Especially in tech...

Trade Signal: Sell

Disclosure

Short RIMM

Quote of the Day
"Markets are never wrong. Opinions often are."

Video of the Day

How Cash Does RIM

Legal Disclaimer:
The content on this blog is provided without any warranty, express or implied. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS AND OPTIONS. The author may have a position in any company or security mentioned herein.Actions you undertake as a consequence of any analysis OR opinion on this site are your sole responsibility.

Where does Cash come from?

Me in '84

Spare Cash

I was going to deliver a diatribe on where I think "RIMM is headed" but realized that it is more important to tell you "who I am" and "where I am at" instead. Lucky for you, right? Well, I just put on the biggest trade of my career this week and realized what an uphill battle all this has been for me, looking back. Whenever I am under a bit of pressure, I tend to look back into the past to gauge if I am making the right decision in the broader scope of things. Growing up, my dad was a nightclub owner and my mom was an accountant for an investment bank downtown. I am not ashamed to say we grew up in Queens, NY in the bricks. Like all my friends, I wanted to be a pro baseball player for the Yanks when I grew up. My folks always told me that the future is always more important than the present or the past. When I was 16, my dad lost his complete savings in two bad investments. He was more of a gambler type than an investor and often chased his bets. I had a joint account with my Mom who was a wizard with numbers and more disciplined. My dad always had too much pride to listen to her advice, most of which she got from her co-workers. He was constantly trying to one up her to prove his intelligence since he never went to college. It was at that time that I learned first hand that pride and independence could be fatal in investing. Dinner at our household was always quiet and tense as my dad had a habit of mumbling and cursing something like, "Damn LTV!!" It's all rigged!..." My mom would never talk about how well our portfolio was doing so as not to offend him. They got divorced shortly after that time, around my freshman year at NYU . And anyone that says money is not important must already be wealthy. It was my mom who sacrificed for my tuition while I did a part-time internship at her company and part-time at a new coffee shop called Starbucks. I've come a long way since those years and so now I find myself here. It seems so strange now that I'm married, have a 3 year old son myself, and work on Wall St. Sometimes life comes at you TOO FAST.
Now I find myself in the most important week of my trading life. One that can define my life. Life is full of defining moments, and this is one of them. As I just put on the largest trade of my life earlier this week (90% of my portfolio) leveraged in RIMM short. It will put me in a new tax bracket if it hits. And so far, I'm half way there. So I couldn't help but think of my dad, and what would have been if he had only listened...

Sentiment Analysis of RIMM

Expect a tiny bounce in the indexes in the AM. I doubt we will get the classic "RIMMsaw" today. RIMM and tech are broken. All pops should be seen as opps to add to shorts. I think this is the beginning of a heavy cycle down that may last a few sessions in RIMM and tech. We should continue to selloff hard into the weekend.

Trade Signal: Sell

Disclosure

Short RIMM

Quote of the Day
"Pride of opinion has been reponsible for the downfall of more men on Wall Street than any other factor." - Charles Dow

Video of the Day

This Friday's U.S. Employment

Legal Disclaimer:
The content on this blog is provided without any warranty, express or implied. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS AND OPTIONS. The author may have a position in any company or security mentioned herein.Actions you undertake as a consequence of any analysis OR opinion on this site are your sole responsibility.

Sharks In the Water...

Goldman Sharks?

Sentiment Analysis of RIMM

The Street reacted to RIM's 3g release delay by taking RIM down 6pts on Friday, only to have buyers come in later in the session to push it back to close 2 pts off the high. As with any manipulated stock, buying/selling pressure will come in to take it the other direction when this occurs. Consider the delay announcment the tremor before the earthquake for longs chasing the last 1/8. Upside is limited here folks, even for the traders. We are now at a a crucial point with RIM as I think we are at an inflection point and setting up for a big move down this week. This will be the beginning of a long term decline in RIM and P/E deflation (see April 5 blog). I am now officially short term (weeks) bearish as well as long term (months) bearish on RIM as the economic outlook is coming to roost. I also don't like the rumors I'm hearing on the Street about what is about to happen to RIM midweek, either. That being said, I see any future pops from here onward as opportunities for investors to enter and build short positions (common). Traders should be nimble and play the long side only as day trades (day) or options plays as even the intermediate is now bearish. Watch closely at Monday's open, because I think MM will initially push this higher a few points in the AM and this will be the opp I mentioned above for new short entries. A huge takedown will begin mid week so be prepared on the short side. I am tracking for entries to go short. It has been a profitable few weeks weaving through the long trades, but the time has come: RIM is a SELL, both short term and long term.


Technical Analysis of RIMM

Rimm sitting on 120 hard support just off the 20dma. Now normally I would think this is setting up for a classic rim spike after a down day and look for the the long daytrade at Mondays open. Not this time. I really don't know where the buyers came in from Friday! This volume divergence in RIM and the general market has been bothering me all last week. It seems that this market does NOT want to break the 50% FIB level on the Dow (12900) and spx1400 decisively. It portends that this market is being artificially propped and we are about to break hard very soon. After doing some DD this weekend, technicals point to the downside. RIM and the overall market is a sell and the early part of this week will be confirmation of that.

Trade Signal: Sell

Trade of the Day

Tracking for short entry near 124 at Monday open for short-term, intermediate-term, and long-term

Disclosure

Short RIMM

Quote of the Day
"Be greedy when others are fearful, and fearful when others are greedy" - Warren Buffett

Video of the Day

Somebody Wins, Somebody Loses

Legal Disclaimer:
The content on this blog is provided without any warranty, express or implied. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS AND OPTIONS. The author may have a position in any company or security mentioned herein.Actions you undertake as a consequence of any analysis OR opinion on this site are your sole responsibility.