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Looking for levels as we follow the "motion"

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Earlier today we discussed how to correlate some levels with a recently profiled bearish trade in shares of Verizon (NYSE:VZ) $40.91 -2.9% with a corresponding sector in the Wireless Index (YLS.X) 49.66 -6.05%. However, bears in past bearishly profiled Research in Motion (NASDAQ:RIMM) $13.23 -5.5% from the $16 level don't necessarily have the benefit of "sector" association with witch to correlate with, but there is still an "association" with the YLS.X as one of the "reasons" began performing some technical analysis on the stock was its ties to Palm Inc. (NASDAQ:PALM) $1.29 -1.53%, which is a component of the YLS.X.

Research in Motion Chart - Daily Interval

Our bearish trade in RIMM from the $16 level is starting to pan out as the stock threatens to violate a recent low that was defended by Soundview. While RIMM is not a component of the Wireless Index (YLS.X), one of its competitors Palm (PALM) is. Therefore, a trader can still use the "association" with the stock to the YLS.X. Heck, one could almost imagine any restructuring in the YLS.X having PALM removed for "lack of representation" and being replaced by RIMM. Under current market conditions and the YLS.X breaking to a new low, a bear would love to see that take place.

Bear's short from profile near $16 will be targeting the crisscrossing mid-point of regression and retracement near $12.07, while a longer-term bear can perhaps tie in the crisscrossing lower end of regression and the $8.00 retracement level with the bearish vertical count from the point and figure chart.

Traders will also remember the $15 level was a triple-bottom sell signal on the point and figure chart. From Professor Davis' study, we were looking for a 93.5% probability that the stock could decline 23% over a 3.4 month time frame. From $15, the stock currently is down about 11% and to fit in with Professor Davis' study, a target range of $8-$11.56 is still in play.

Traders short the underlying stock should have lowered their stops in this trade to a MINIMUM of break even.

Options traders holding the profiled December $15 puts (RULXC) from $2.60 still have quite a bit of time left in those options. Partial gains can be taken on a trade at $12, but a longer-term range that may fit the December expiration would most likely be looking at the $8-$11.56 range.

Jeff Bailey
Senior Market Technician
Option Investor

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