Wednesday, February 11, 2009

Research in Motion (RIMM) Outlook Snares Bulls

This is one treacherous market....

As I wrote just yesterday I tend to be a trend investor - I love to buy breakouts and ride them

For any of us who trend trade or buy breakouts this past year and has been heartbreaking -- once the commodity trade died last summer. That whole style of investing has gone out the window. So now you buy dips, sell rips. And keep repeating. The problem is some of these dips have no bottom to them which is why I hate the style. But this is the only thing working.

Research in Motion (RIMM) was a perfect breakout; you should be able to buy it and sit back and let it ride. But there is no safety in this market. Today the company announces nothing "terrible" but so much momentum money was riding in this name ("gotta buy, the chart is strong"); they flee on any sign of warts. Live by the momentum guys; die by the momentum guys. You'd be down 12% in an instant this AM.
  • Research In Motion (RIMM) said its fourth-quarter earnings and gross margin would be at the low end of its previous forecast range, even as subscriber additions topped expectations. The BlackBerry device maker said on Wednesday that a variety of factors, including product mix, lower inventory levels and a higher ratio of new subscriber sales to upgrade and replacement sales, resulted in subscriber growth outperforming revenue and earnings performance in the holiday quarter.
  • In December, RIM had forecast quarterly revenue between $3.3 billion and $3.5 billion, with earnings per share of 83 cents to 91 cents. Both were above Wall Street's estimates at the time, and analysts ratcheted up their forecasts and the stock surged, gaining more than 40 percent year to date.
  • Wednesday's outlook signals RIM could miss the mean analyst forecast for earnings per share of 86 cents, according to Reuters Estimates. Analysts were, on average, expecting revenue of $3.4 billion.
And this goes to the other point we raised as we discussed the Baltic Dry Index/China trade.... do you buy a thesis knowing there is a great chance its all a hoax, but realizing hedge funds need to find something to trade to "create beta" (performance).... watching it unfold without you and feeling dumb in the short run? Or do you sit aside - watch these stocks rise for no good reason outside of "thesis" knowing inevitable they will blow up (see dry bulk shipper stocks yesterday). This is the quandary in this market. We mentioned how "technology" was running of late - I can't find any good reason other than by process of elimination there are not many other sectors left to create a "thesis" about.

Now with that said, technically if Research in Motion holds $50, its 50 day moving average - you know the same performance chasers will be back soon enough. Heck, I may join them this time since we can see where people will run too on any rebounds (technology) and I have little exposure there... we'll see. In a relative world full of bad things, this "warning" is not terrible.

Note chart is before today's pummeling pre market

But just like summer of 2008 when people were buying technology as a safe haven; I find this recent wave of technology buying nothing more than thesis and hedge funds creating something out of nothing to generate gains. Even the much ballyhooed "smart phone market" has been shown too much love; see what Nokia (NOK) is saying/doing.
  • Cellphone maker Nokia
    (NOK) said on Wednesday it would cut production at its key
    Salo plant in Finland as demand for handsets has dropped.
  • Cellphone sales are set to dive this year, affected by
    consumers' reluctance to spend on new gadgets in the midst of
    the economic recession and large inventories built up by phone
    sellers at the end of last year.
  • Analysts and the industry in general expect the smartphone
    market -- where Nokia has lost market share to Apple (AAPL)
    and Research in Motion ) -- to grow some 10 percent to 20
    percent this year, despite a fall in the overall market.
  • However, Nomura forecast on Feb. 10 for no growth in
    smartphone market in 2009, saying industry growth views were
    unrealistic in the economic environment. "I find that the industry view
    there will be good growth in smartphones in 2009 to be fundamentally flawed,"
    Nomura technology specialist Richard Windsor said in a note.
Looks like Nomura is being realistic while everyone else is still drinking Kool Aid. Thesis baby... thesis. This is just yet another consumer discretionary item and poorer Americans will not be upgrading their phone every 6 months like they have been "entitled" to do in the past; and less will be able to afford to upgrade to higher level models. Same goes for much of Europe.

No positions

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