Understanding the behavior of other market participants can give you an idea of what may or may not happen with Blackberry stock.
- Options activity can provide a clue to important levels.
- The Point of Control can help you visually understand the fairest price.
- Short interest is reasonably high in BlackBerry stock.
When I see BlackBerry (NASDAQ:BBRY) being touted as a buy, I wonder what hopeful scenario people are fantasizing about?
The long-term chart shows a collapse in the trend. I know what you are thinking. If I buy the shares at a discount, then I will make a killing when the stock goes higher. That is a feel good psychological emotion. What if that does not happen? Yes, this chart is after the fact, but as I always say you need to be prepared for two scenarios: going in your favor and going against you.
(Source: Yahoo Finance)
One reason I don't fully buy into the pure fundamental analysis approach is that it ignores market structure, fails to take into account what the other players are focusing on and is heavily opinion-based resulting in cognitive dissonance. Remember, the minute you enter the market, you are at the mercy of the market. We can only control entry. We have no control over the return.
What Options Activity Is Telling You
Options activity tends to precede stock price movement. I have noticed this on multiple occasions. So where can BlackBerry stock go? When I see that there are barely any Blackberry options trading a few months out, it tells me to find another opportunity. There is a lack of conviction in the stock. Generally, you want to see at least 1000 contracts in volume. It informs you of liquidity and gives you a better picture of where the areas of interest are. If no options are being traded, you are a lone wolf trying to guess direction. The opportunity to make a profit becomes more difficult. It will also be important to monitor the open interest daily. Increasing open interest can be interpreted as a bullish sign for the stock. Using options data gives you a dynamic view of stock price behavior.
Point of Control
Though the following may appear technical, it is far from it. It is based on the market auction theory. The idea behind the market auction theory is that market participants are trying to find the fairest price where price equals value, which is known as the point of control. It is based on price, time, and volume. The idea is that the time that the stock spends at a certain price indicates the amount of volume at that price and fairness of the price. Over weeks, if the price of the stock remains at that level, you know that the chances of a violent movement is unlikely. A normal day resembles a normal distribution curve.
It is best to observe in real time how long BlackBerry price spends at each level and whether the price has a tendency to get back to the point of control the yellow bar. This is the price that most market participants accept. As you can see the points of control are close to the $7.50 strike. The market participants seem to be keeping it around that level.
Short interest is another aspect to pay attention to. 9.5% short interest is pretty high and suggests caution if you are thinking of shorting the stock. Short covering could occur, pushing the stock higher. The dollar amount of the move may be insignificant. For a 7 dollar stock, a move to 8 dollars is a 14.2% move. This is a large percentage move. Don't expect the stock to have this kind of move in a few weeks. Many market participants look for a 10% move in the market per annum.
Long term is relative in the markets. You have to pay attention to what the other players are doing to survive. Fundamental analysis alone would falsely give you some mental serenity. However, understanding the behavior of the participants from different angles can give you an idea of what may or may not happen with Blackberry stock. It is best to wait until there is more clear and understandable participation in Blackberry. You are better off putting your capital in a stock that is actually moving than ranging.
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