BBRY Stock: Technical Reversal
It has only been about a week since my last publication on BlackBerry Ltd (NASDAQ:BBRY) stock, and I am revisiting this name because there has been an important development and quite a bit of excitement following the company’s fourth-quarter earnings release. This better-than-expected earnings report caused BBRY stock to surge higher by 11.5%. This upward surge in price changed the entire landscape on BlackBerry shares.
In the earlier publication that I mentioned, titled “An Explosive Move in BlackBerry Stock Is Brewing,” I outlined a technical price pattern that has been in development for many years. This technical pattern would determine the next direction that BBRY shares were heading in next. The pattern was also suggesting that a resolution to this pattern was imminent.
The fourth-quarter earnings statement was the catalyst that finally completed this technical price pattern, and the direction suggested by this pattern is that a higher price will prevail.
For anyone who hasn’t frequented any of my previous publications, my investment views are generated using technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. This may sound like a ridiculous notion, but I have been using this method for nearly two decades, and it has produced excellent results when I applied it to my trading strategies.
The following BlackBerry stock chart illustrates the technical price pattern that was completed in the aftermath of the better-than-expected fourth-quarter earnings report.
Chart courtesy of StockCharts.com
The technical price pattern that is highlighted on the BBRY stock chart above is a symmetrical triangle. This triangle price pattern is particularly large, and has been in development since 2013.
In general, triangle price patterns are particularly powerful technical patterns, and this is due to their shape. Symmetrical triangles contain two converging trend lines: the upper trend line represents resistance, and the lower trend line represents support. As this technical pattern develops, these converging trend lines cause a confinement of space, where the range between support and resistance continues to shrink.
The confinement of space causes momentum to build within the pattern. This momentum is finally released when the pattern is complete, and the share price exits the technical price pattern. Larger patterns that span longer time frames are expected to produce an equivalently large and long reaction.
On March 31, BlackBerry reported better-than-expected earnings, and this caused the price to exit the price pattern. This “breakout” is highlighted on the price chart above, and it indicates that the technical price pattern was actually an ending triangle. An ending triangle is a reversal pattern, and it serves to suggest that the trend toward lower prices has concluded, and that higher stock prices are now likely.
There are still a number of hurdles that need to be overtaken before I can truly be convinced that a genuine bull market in BBRY stock has begun.
The following price chart illustrates the long-term downtrend that has acted as a defining level of resistance.
Chart courtesy of StockCharts.com
The BlackBerry price chart illustrates the quintessential characteristic of a bearish trend that begins in the upper left and ends on the lower right, completely encompassing the price chart.
The bearish trend of lower lows and lower highs is easily defined using a simple downtrend line. This downtrend line is easily created by connecting the peaks on the price chart. Trading below this downtrend line suggests that even though BBRY shares completed an ending triangle, indicating that a reversal is now in play, this bullish view is still within the context of a much larger bearish trend. In order for a true bull market to exist, BBRY shares need to close above this downtrend line.
This downtrend line currently sits around the $12.00 level and, based on the completed reversal pattern, I believe that BlackBerry stock will attempt to test this trend line in the not-too-distant future. From the current price of $8.07, BBRY stock can potentially run up 50% before resistance is met.
Bottom Line on BlackBerry
I am cautiously bullish on BBRY stock because it has completed a technical reversal pattern which now suggests that higher prices are likely. This bullish view is still within the context of a larger bearish trend, so caution is still warranted. I believe that the resistance that outlined the downtrend line is the next price objective for BlackBerry stock. This view was generated using indicators on the BlackBerry price chart and, until there are indications that another view is warranted, I will continue to maintain this cautiously bullish view.