PreMarket Prep Stock Of The Day: BlackBerry

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

There are always sympathy trades in the markets. It's hard to ignore the short squeeze trade originated by GameStop Inc. GME and now AMC Entertainment Holdings AMC.

One issue that has participated in both is Blackberry Ltd. BB.

First Go-Around: In January, when GameStop made its historic run from $17.08 to $483, other issues with high short-interest (number of shares that have been sold short but have not yet been covered or closed out) were targeted as well.

With GameStop soaring into triple digits in a volatile fashion, traders could trade more shares in a more liquid market and a lower-priced stock such as Blackberry. As a result, the issue went parabolic.

The first part of the move took place in a three-day span ($7.44 to $12.35) on Jan. 12-15. The momentum kicked in and the issue bolted Jan. 27 to $28.77 and retreated to end the session at $25.10.

That marked the highest level for Blackberry since September 2011 when it peaked at $33.54. In the next three sessions, it cratered to close Feb. 2 at $11.55. The ultimate low for the pullback was made on May 7 ($7.71). Interestingly, that's the area from where the rally emanated from.

Here We Go Again: The nature of the current move was more compact. It started to gain momentum in the last half of May, moving off the low of the move to end the month (last Friday) at $10.07. On Tuesday, when AMC started to blast off, BB issue rallied to $11.56. On Wednesday, it peaked at $16.66 and weakened to close at $15.25.

Aggressive traders nudged the issue all the way to $21.54 in premarket trading, but could do more better $20.17 in the regular session. The culprit for the wicked retreat was the same as the instigator on the way up, AMC.

During premarket trading, AMC announced its second stock offering in a week and actually warned investors to be cautious in participating in the offering. With the vote of non-confidence from the company, AMC went into a downward spiral.

After peaking at $77.30 in premarket trading, AMC peaked just under Wednesday’s close ($62.55) at $67.67 as of 2:30 p.m. ET, has swooned to $37.66 and has bounced back into the high $61 handle.

Blackberry gave investors more a chance to exit as it was in the green by nearly $5 when it peaked just after the open. Eventually, the sympathy sellers came in and knocked the issue to $13.56 and is now trading actively in the lower $16 handle.

Moving Forward: When a stock becomes this disconnected from its fundamentals, it can and will go anywhere. For those attempting to go long the issue at its currents level, be aware of two things:

• There are many investors who are longer from much lower levels and may be attempting to exit on any rallies.
• Other inventors who were late to the party may be attempting to break even or exit with a smaller loss.

For the brave souls who are attempting to short or scalp the issue be aware of a few factors:

• First of all, never underestimate the power of the masses going in either direction.
• Much of the trading volume in the issue is being generated by hedge funds and sophisticated algorithms that will flip back and forth from buy to sell in milliseconds.
• Finally, large option firms that are taking advantage of the outrageous premiums being paid may come to hedge or lock in a gain, without caring less about the long-term direction of the issue.

As always, respect your predetermined risk paraments and don't hesitate to exit at your profit target or exit at a loss if necessary.