RIM: Seize the chance to buy

The Stock: Research in Motion

Recent price: $78.52

Trend: Technology stocks offer investors some relative calm compared to the current volatile gyrations of the resource sector. Twice in the past month the market has shown just how unconvinced it is about global economic recovery. This wavering belief hits cyclical stocks hard, sending materials and energy stocks for significant setbacks. But the tech sector has shown some relative composure as the market grapples with its faith in the recovery story. The S&P Technology Index has been Stock Trends Bullish for a month now, out-performing the broad U.S. market by 3% in the second quarter. Equally promising in this volatile market, tech stocks have shown relative price performance - besting the S&P 500 Index in each of the past five weeks.

The Trade: The tech darling on the Toronto Stock Exchange is the elephant in the room - Research in Motion. The stock was highlighted by the Stock Trends stock picking screens in the spring, and turned Stock Trends Bullish at the end of May. However, after hitting $95 in mid-June the stock pulled back to the $80 level, a base price that earlier helped advance the stock to its June high. This week's market plunge has shaved a little more off RIM, leaving the stock now fending off a drop below $78.

But challenges like this can be opportunities. Investors unfazed by the current market anxiety can use this price weakness to buy RIM shares. The 13-week moving average trend line support has been violated - the current Stock Trends Weak Bullish indicator alerts us to this condition - but technical price support at the current level has some potential to help advance RIM back on its bullish intermediate price trend. Aggressive investors will take a stand here and go long.

The Upside: Although this is a trade with short-term risk, the potential for another upward move toward $95 is enticing. The Stock Trends analysis focuses primarily on changing trends. The Weak Bullish indicator generally advises investors to evaluate a stock holding for a possible sell. However, the indicator also points technical traders to evaluate the price history for signs that the current price level offers not only support, but potential for a rebound. If the stock does rebound from the current level, a 20% gain is a reasonable expectation. Of course, a longer-term bullish outlook could be even more positive should the stock recover from here.

The Downside: This trade will require a finger on the sell trigger. The belief is that RIM holds at the current level, but the market will have its say. A move below $75 - the high the stock initially reached on its breakout at the beginning of April - would signal firing. Regardless of the fundamental issues that may affect the market's expectations of RIM, a technical trade at this moment should limit a loss to the 5-8% range.

Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/