Update on BlackBerry After Wall Street Profit Taking

Readers may or may not recall that I cut my long position in BlackBerry Limited (BB) back in mid- to late June. I wrote on June 23, one day prior to the firm's first quarter earnings release, that I would be taking action ahead of the numbers. 

Effectively, I took about half of my position off at an average price of $4.32. My net basis on the entire trade is $2.93, so a profit of 47% on that portion of the trade. We'll always take trades like that when we can. 

The other side of the story is that I left half of the trade just in case I was wrong about taking my leave. The shares popped sharply higher at first and then continued to deteriorate from there. I have last seen the shares cross the tape early on Monday morning, just above the $4 mark, which is actually a key technical area for the name. Let's talk about this...

My Plan Then... 

I wrote to readers on June 23 that I would add those shares back on in between the 50-day and 200-day SMAs, but if the shares fell below the 200-day SMA that I would exit the name completely. At the time, the range in between the 50-day and 200-day lines spanned from $3.50 to $3.70. Obviously, over the weeks that followed, as the share price eroded, those averages moved higher.

Earnings 

Those FQ1 earnings went alright. BlackBerry beat expectations for adjusted earnings and revenue generation. The firm, however, provided forward looking sales guidance that was solid enough for the full fiscal year, but moderately disappointing for the fiscal second quarter. Wall Street-wide profit taking continued. 

The firm will not report those FQ2 earnings until late September, so there is a way to go. Wall Street is expecting to see EPS of $0.01 on revenue growth of -15.8%. Actual sales growth is not projected for a full year until fiscal 2027.

The Chart​ 

Readers will see that BB has broken down from a rising wedge of bearish reversal ​despite a bout of post-earnings algorithmic buying that may have had some short covering behind it as it looks to have run out of steam quickly. The stock ended the Thursday session making use of its 50-day SMA as support. On Friday, the level was pierced to the downside, but contact was not broken. On Monday morning, we are seeing an attempt to retake the level. 

Relative strength has rapidly deteriorated over the past few weeks and now reads as slightly weaker than neutral. The daily MACD is not bullish. The histogram of the nine-day EMA has been below zero for seven consecutive trading sessions, while the 12-day EMA has crossed below the 26-day EMA and that gap between the two lines has only grown. 

This, in my opinion, is a bearish setup. I will not be adding here. That said, if the 50-day SMA can be retaken and held, I will not exit the name at this time either. Should the stock lose the 50-day line, I will exit the shares that I still own and would consider re-entering at the 200-day line. We're still working with a nicely profitable trade here. No reason to make a rash decision.

At the time of publication, Guilfoyle was long BB equity.