Trading Research in Motion post Q1/2009

Research in Motion (RIMM on the Nasdaq and RIM on the TSX) had its latest earnings announcement on Thursday, April 2, 2009 after market close. Results were good, having exceeded analysts expectations, so excitement and optimism are back in the air. The stock gained 19% on Friday. On Wednesday and Thursday, the stock had up-candle days in anticipation of the earnings announcement. Since Tuesday’s close, RIM has climbed from $54.49 to Friday’s close of $72.80 for a 33% rise.

I did my last day-trade on RIM on Tuesday which was a down-candle day. For once, I stuck to my rule of not holding a stock past earnings announcement. Therefore, I avoided trading RIM after Tuesday because I did not want to risk holding the stock. It was tempting as the stock kept rising. In retrospect, it would have been a good move to hold but I did not take the risk. There were also short positions held on RIM at the $54 level; look where they are now. It is not worth the risk, long or short, to hold short-term trading positions past earnings announcement. That’s my appetite for risk.

On Friday, analysts were busy changing their previous estimates on the stock and at least 10 analysts had either upgraded their recommendations or bumped up their price targets for the stock, or both. Oh, the life of an analyst, making such bold recommendations! Do something worthwhile such as performing due diligence prior to earnings announcement and make your recommendations before, not after, earnings announcement.

Research in Motion did a good job of managing expectations, even issuing a prior warning that they will come in at the low end of company projections. The reverse effect may happen here with analyst upgrades and good news all around propping up the stock price and keeping the momentum up. Are expectations being set up for disappointment?

I’ve taken RIM off my active trading list. I will wait a while to see where all this hype and euphoria settles, in terms of the stock price. In my view, it is extremely risky to buy after a 3-day 33% rise. Also, it is not a shorting opportunity as there is good news and momentum holding up the stock. After all, the company did perform well. I think upside is limited in the short-term. It may not drop off either. I think it moves sideways in the next little while, unless there are other dictating factors such as the direction of the overall market.

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