It is no secret that stocks are prone to sudden moves in either direction. This could be triggered by economic data, geopolitical events, stock-specific news, or market sentiment.
Trading such volatile stocks are usually considered a high-risk-high-reward venture. Many traders opt to stay out of the trade rather than risk a loss. However, careful analysis of the charts could help you to enter at the right levels, thereby limiting risk to an extent.
With this in mind, we have started a new weekly series on the trending stock of the week —stocks that are featured heavily in the news.
This week’s stock pick is BlackBerry Limited (NYSE: BB), the company that provides intelligent security software and services to enterprises and governments worldwide by leveraging artificial intelligence and machine learning. It offers a ‘BlackBerry Spark’ software platform that includes a suite of security software products and services comprising BlackBerry UEM, BlackBerry Dynamics, and BlackBerry Workspaces solutions; and BlackBerry Spark SDK.
Why is BB trending?
Blackberry no longer makes smartphones but is now primarily a software company. BlackBerry had gained huge momentum in December 2020 after it announced a collaboration with Amazon Web Services. This collaboration had resulted in the launch of BlackBerry IVY, a revolutionary development in automobile software. In addition, BlackBerry also began making headway as an unlikely competitor in cybersecurity due to recent innovations.
Many stocks like GameStop and AMC Entertainment have been recently surging on the back of a social media-fueled movement to force a short squeeze. BlackBerry was also impacted by this frenzy, resulting in its surge and volatile price movements.
BlackBerry is expected to release its first-quarter fiscal 2022 results towards the end of this month. In fiscal 2021, the company made some impressive strides. This is widely anticipated to continue this time as well.
On the flip side, the company’s revenue has been on a steady decline for years, sales have been in a clear downtrend, and BB’s fundamentals are lackluster. For perspective, BB had posted a $1.1bn loss for the 2021 fiscal year and its profitability was quite volatile – mostly negative – in the past nine years at least. In addition, the current “meme stocks” trend is also not anticipated to be sustainable for the long-term as traders tend to keep moving funds into other stocks with high short interest.
Here’s how to trade BB right now.
BB Chart
On analysis, there are multiple bullish indications on the daily chart of BB.
Daily Chart – BB
#1 Price Above MAs: The stock is currently above the 50-day as well as 200-day SMA, indicating that the bulls are still in control.
#2 Bullish MACD: The daily chart shows that the MACD line (blue color) is above the MACD Signal line (orange color), which is a possible bullish indication.
#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#4 Bullish ADX and DI: The ADX line has started to move up from below –DI and +DI lines. The +DI line and the ADX lines are also currently above the –DI line. This indicates possible bullishness.
Recommended Bullish Trade (based on the chart)
Buy Level: If you want to get in on this trade, the buy level for BB is if it trades above the price of $19.60.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices are $25 and $30 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $16.60. Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 28% to 53% in the next 3-6 months.
For a risk of $3.00, our first target reward is $5.40 and the second target reward is $10.40. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the various support levels with a high volume. The sell-off of the stock could also be triggered in case of any negative news, poor earnings, issues with the vaccine, overall weakness in the market, or any regulatory changes in the sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down from the previous resistance-turned-support area (marked as a red color dotted line) with a very high volume, it could point to an upcoming short-term correction. In that case, below are the entry levels, stop loss levels, and target prices.
Sell Level: You can take short positions on BB if the stock trades below $13.60. This is below the red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our target prices are $11.50 and $8.00 in the next 3-6 months.
SL: To limit risk, place a stop loss at $14.80. Note that this stop loss is on a closing basis.
Our target potential downside is 15% to 41% in the next 3-6 months.
For a risk of $1.20, our target rewards are $2.10 and $5.60. This is a nearly 1:2 and 1:5 risk-reward trade. In other words, this trade offers nearly 2x to 5x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards from the support areas with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
— Trades of the Day Research Team
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