Momentum Faltering in Quant Models

Another volatile week on Wall Street has many questioning assumptions that were unassailable at the beginning of the week.

Yes, the recession talk has heated up. But we are concerned with something else, many quant models are flagging an important change in the markets complexion. And you don't have to be a rocket scientist to figure this one out. Momentum is no longer working, and is turning into a bit of a scarlet letter. The dreaded M is not working in the factor models. It might be premature to write it off, but could signal a shift in leadership.

Indeed, the former darlings are beginning to underperform on both up and down days. And one of our favorites, Research in Motion (RIMM-NASDAQ) is one of the usual suspects. Yesterday J.P. Morgan came away positive from a recent investor meeting with RIM management, with management giving the usual bullish commentary, and dismissing concerns over cyclicality given their phones value proposition, not to mention addictive qualities.

But a Canaccord Adams downgrade today has us questioning our posture on the name:

Peter Misek, global technology strategist at Canaccord Adams, lowered his recommendation on BlackBerry maker Research In Motion Ltd. (RIMM) from “buy” to “hold” and is cutting his price target on the company from US$145 to US$110. The downgrade is a first in recent memory for Mr. Misek, who has long been one of RIM’s staunchest supporters on Bay Street. He had maintained a “buy” rating on RIM since September, 2005.

“This is still the best-managed technology company and still a great story, just not for the next six months or so,” he said in a research note. “It’s really being driven by what we think are some factors outside of RIM’s control, the biggest one being the [U.S.] economy.” Seeking Alpha

Misek is looking for an elongated upgrade cycle due to cautious enterprise spending, exacerabted by the economic slowdown. But, perhaps more relevant, an apparent delay in a new 3G device due to production issues is not good news, and the stock’s technical consolidation might drag on. The stock might not be able to shake off the downgrade, and and if more analysts might follow his lead in the weeks ahead the shares might turn into something shareholders have forgotten. A dead stock.

Stay tuned. Lets see if MacWorld next week can put a charge back in Apple, Inc. and the other market darlings of 2007.

Research in Motion Downgraded by Longtime Bull
Seeking Alpha

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