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November 30, 2005

Another Day in Court

Research in Motion had another bad day in a Virginia court. Today's ruling that the company's putative settlement agreement with NTP is unenforceable sent the shares reeling nearly 6%. The decision means that an ultimate settlement with NTP will cost RIMM far more than the $450 million they were trying to impose.

As with previous days in which a court ruling bullied the stock around, RIMM shares were halted for a time. A big difference in today's action is that the share price drop occurred after the resumption of trading rather than before. The difference may at first glance seem trivial, but I think otherwise. Previously, RIMM enthusiasts were able to ramp the stock back to even or better after resumption of trading. Today the stock gapped down when it re-opened. After a brief attempt at recovery, the stock drifted and closed near its low. Although I have been looking for an exit point for this short, today's action compelled me to wait at least another day to see if we get follow-thru to the downside. My reason for wanting to exit the short is simply not to be caught when an eventual settlement is announced (which I expect will happen within a month). Whatever the terms of the settlement, a relief rally will likely ensue, providing an opportunity to short more safely.

GM took a new spill today as fear over poor future sales set in. Traders are slowly coming to the realization of how badly future sales were cannibalized by the aggressive promotions of late summer. Jim Jubak of also posted a fine piece describing how GM's core problems have less to do with competitiveness of international labor than with failure to provide innovative products.

The shinies took a breather today, sparking a bout of profit-taking in mining stocks. Newmont was hit for 2.5% and Pan American Silver for 3%… just blips along the road to fortune.

Disclosure: Short RIMM; Long NEM, PAAS Calls


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