Blackberry (BBRY) drop. Time to buy, cover, or short? Here’s my take.
Discussed in this article: Research In Motion Limited ( $BBRY )
I want to look at BlackBerry (NASDAQ:BBRY ), the stock that everybody seems to be looking at, at least those folks that traded over almost a hundred thirty-six million shares on Friday. The stock was in a volatility squeeze and I mentioned last week that the short interest was actually pretty high so you probably want to steer clear of this for earnings. You’ve got to wonder how bad could it be to where shorts would not be covering their shares? In other words how bad could the bad news be to actually cause this stock to drop? That’s what you’ve got to look for when you have high short interest.
Well guess what happened? We got a 27 almost a 28 percent drop, so all of those shorts, guess what? They’re right, they’ve been right. Now, if you are shorting this stock right now, if you are going to come in on Monday and short this stock because you think it’s going lower, that trade may work, but just keep in mind a lot of the shares that you’re going to be able to sell are probably going to be bought by those that are covering their shorts. If you’ve been short this stock it’s kind of hard not to cover when the stock drops 28 percent in a day. I suspect in fact that’s why this stock stopped where it did.
The bottom line is this, they didn’t even want to say how many BlackBerry 10 (NASDAQ:BBRY ) sales they had, it wasn’t in their earnings report at all and that’s a change. In the conference call they said that about 40 percent of their shipments were the BlackBerry 10 (NASDAQ:BBRY ). I read an article in “Motley Fool” where they said that 2.7 million units is well below what consensus estimates were. So what are we saying here? How long have we been waiting for the new BlackBerry (NASDAQ:BBRY )? For a long, long time, the anticipation was big, then the company releases the unit, it seems like it’s great, reviews weren’t that great but the proof is in the pudding, the proof is in the sales; the sales came in crappy.
So what happens now? Where’s the value in BlackBerry (NASDAQ:BBRY )? There is no value, it’s not growing it’s shrinking; there are no earnings it’s actually losing money. So I think you want to steer clear of this stock. Would I short this stock? No, I don’t short stocks that are down 27 percent in a day. But here’s your trade; first of all if you bought this stock just know that 10.25 is the low; I would suggest using $10.00 as your stop. If you bought this stock use $10.00 as your stop, if the stock drops, forty-six cents to $10.00, if it drops a few cents below that, you need to go ahead and sell that stock even if you’re losing money on it. By the way, you can always buy it back if the stock turns around and starts moving up. My sense is though; once you sell it you’re probably not going to buy it back.
Now on the other hand, if you shorted the stock here, you shorted the stock then you at least want to have a buy stop, and I’m bracketing this thing, you want to at least have a buy stop in just a little bit above the intraday high, we’ll call it $11.00. So this stock is trading right in between the “Oops I’m wrong levels” on each side. I’ll give you one more possibility, if the stock starts rallying above $11.00, then what are you going to have? You’re probably going to have folks that were short that are going to be additionally covering. You’re probably also going to get the evil machines coming in and pushing this higher and you’re going to get the dip buyers who are saying, “Wow, 27 percent in a day, this is ripe for a rally.” If the stock starts trading above $11.00 it can get up to $12.00 in a hurry, and you do the math, that’s not a bad day trade, a one or two day trade, maybe up into this level.
The bottom line is this, just know that the short sellers are the controlling dynamic here, whether they’re covering or not is really going to impact which way the stock goes from here on Monday. So I want you to watch for that, don’t go crazy one way or another.