For those of you wondering whether or not I agree with the big plunge today from InterDigital, Inc. (IDCC), I don’t. I think this is completely a case of “buy the rumor, sell the news”. I don’t think it mattered what InterDigital reported last night….the stock was going to sink like a rock simply because the Nov./Jan. rally left too much profit potential on the table. The slight breakdown in February, and yesterday to be specific (IDCC closed under that key 50 day moving average line), was the hint of today’s reaction.

More importantly, what’s next? Is InterDigital really the piece of crap the market is saying it is? I don’t think so, but I’ll let you decide for yourself.

In Q4…

• Revenue increased from $54.9 million to $58.7 million (+6.9%)
• Income improved from a loss of $2.0 million to earnings of $3.8 million (technically, +195%)

For the full year…

• Revenue fell from $234.2 million to $228.5 million (-2.4%)
• Income increased from $20.0 million to $26.2 million (+31.0%)

Looking ahead to Q1 of 2009 and beyond….

• InterDigital is looking for revenues between $69 million and $71 million

As of right now…

• The twelve-month P/E is 44.6, while the forward-looking P/E is 15.4 (based on analyst estimates).

So what went wrong today? Like I said above, I think this (the dip after the news) was going to happen no matter what. However, there are a couple of things that didn’t quite meet expectations…. like Q4 earnings. The market expected 16 cents per share, but it only got 9 cents per share. And, though it shouldn’t have been a surprise, investors didn’t care for the slight dip in revenue, even though it had already been logged in the first three quarters of the year (Q4’s revenue actually helped offset the dip).

Unfortunately, the company was trapped by someone else’s unrealistic expectations, and the stock was the victim.

At this point there’s not much benefit in getting out. Besides, I really do think IDCC is undervalued here. It may take a while to reclaim appropriate levels (though a dead-cat bounce should give it a quick start). But a P/E of 15 for a company that’s growing the bottom line nicely? Factor in the bullish effect today’s bearish gap could have too. If I couldn’t find any other opportunities, I’d certainly be willing to take this one.

Besides, there’s some chatter from the company’s management about selling the business. The market didn’t seem to like it initially, but I think that would actually be a great thing. That’s still well down the road though, and may not help get the short-term bullish ball rolling anytime soon.

Let’s see if the sentiment is this bearish tomorrow. I don’t know how it could be, but if it is - and if it looks like nobody else cares about IDCC’s projected valuation - there’s no need to be stubborn.

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You may want to mark March 2nd and 3rd on your calendar if you are a current owner of InterDigital, Inc. (IDCC). The company will be releasing their 4th quarter (and full year) earnings then. And, based on what we see so far, they should be pretty good.

Analysts are looking for 16 cents per share for the quarter, which would translate into 65 cents for the year (i.e. the company has already earned 49 cents year-to-date). At that number, the P/E would be about 45.8. Not great, but bear in mind 2008 was a sub-par year. Those same analysts are looking for $1.96 next year, which would mean a P/E of 15.19. I think the truth/reality is somewhere in the middle.

By the way, InterDigital has topped estimates in the last three quarters. Don’t be shocked if we get a little upside surprise.

About earnings, the SEC filing will be made after the close of trading on March 2nd, so we’ll have the numbers then. The conference call will not take place until March 3rd at 10:00 am EST.

To participate in the call by phone, dial (888) 802-2225 within the U.S. or (913) 312-1254 from outside the U.S. Dial by 9:50 a.m. EST, and ask the operator for the InterDigital Financial Call. The call will start at 10:00 a.m. Eastern Standard Time. There will also be a webcast version. To listen to the webcast, go to www.interdigital.com and click on the “Live Webcast” link on the homepage.

A replay of the conference call will be available on the web for 30 days following the call, Just go to InterDigital’s web site and look in the Investor Relations section. A telephone replay will also be available from 1:00 p.m. EST March 3 through 1:00 p.m. EST March 8. To access that recorded replay, call (888) 203-1112 or (719) 457-0820 and use the replay passcode 4640007.

As far as the IDCC trade is concerned, I think we’re still doing pretty well here. We took our expected lumps, and found support where we needed to take ‘em….right around not one, but two, key Fibonacci retracement lines. At the same time we saw support kick in around a moving average line that’s been exceedingly meaningful (for all charts) over the last few weeks - the 50 day line.

I think this is a case where the chart will be a little predictive of earnings. As long as all those support lines continue to hold up heading into March 2nd, I think the ultimate outcome will be a positive one. No guarantees obviously…just high odds.

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Not a big surprise here. InterDigital, Inc. (IDCC) had been testing a support line at $31.40 since early February, and the bears were slowly but surely overwhelming the bulls. The last line of defense was $31.40, which the bulls defended valiantly. With Thursday’s marketwide decimation though, the stock just didn’t have a chance. IDCC broke under support, and fell all the way back to my next potential support area… the 50 day moving average line at $28.75. InterDigital opened above that line today, dipped under it for a brief time, and is now back above it again.

All in all, it’s a fairly routine pullback for IDCC. Speculators may want to slide into a long position here; safety-conscious traders may wish for any rebound to prove itself. Both groups still need to be alert for a close under the 50 day line though, which could be a bearish omen.

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Time to dust off the discussion about InterDigital, Inc. (IDCC) and its support at $31.40. We thought we had left the question behind late last week when IDCC pushed off that support level and was en route to breaking above the ceiling at $33.69. Funny thing though…. not only was the ceiling never broken, but the floor is being pressured again. InterDigital, Inc. closed at $31.47 yesterday. The selling volume is slightly on the rise too. Point being, IDCC is still on the verge of a minor breakdown.

And I want to stress ‘minor’. I still have a modest expectation that the 50 day moving average line at $28.55 will be a reversal point if the bears take enough hold now to actually crack support at $31.47. In fact, I think I’d be a buyer if the 50 day line is successfully retested.

Why so confident about this support line? Because that’s also where you’ll find not one but two key Fibonacci retracement lines. The more potential support levels there are at a certain spot, the more apt it is to hold up as support. (On the chart below, one set of Fib lines is red, and the other is green.)

I just wanted to let you know what to expect, primarily because I don’t want current IDCC owners to over-react (i.e. dump ‘em indiscriminately) just because the stock gives up a little ground.

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A few days ago, after seeing InterDigital’s (IDCC) higher highs and higher lows transition into lower highs and lower lows, I was prepping for a pullback. No big deal - we were already up about 6.2% on the January 21st trade, and had a profit cushion to work with. The last two days, however, have me thinking the chart’s going to find support a lot higher than I was expecting… at the 20 day moving average line.

The 20 day average was tested as support yesterday, and again today. Both tests were passed; on both days we pushed off that line and made closes that were higher than the opens. It’s not earth shattering, but any ground we don’t have to give up now is ground we don’t have to regain later.

I’d still like to see $33.70 met and exceeded before we get too excited, but as long as the 20 day line holds up, the trade will be in very good shape. On the other hand, even a tumble under the 20 day average wouldn’t be a deal breaker. The only deal breaker would be a move under the 50 day line, currently at $28.07.

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It was only a couple of days ago I was saying InterDigital Inc. (NASDAQ:IDCC) shares were due for the break they were getting. After the run from $26.73 to a peak of $33.69 (a 26% rally), the stock was due for a little profit-taking pressure. So, seeing IDCC start to consolidate between $31 and $34 before a potential pullback didn’t really bother me  - it would likely be a small and temporary dip to bleed off some of the pressures of being technically overbought. Now though, I’m beginning to wonder if the sideways movement is the only dip-like action we’re going to see after all.

Thursday’s low of $31.42 was the red flag. However, InterDigital shares closed at $32.90 that day. On Friday, the low of $32.44 and close of $33.55 was even more bullish. (We’re also seeing support made at the 10 day moving average line.) The net result is not only the avoidance of a pullback, but IDCC shares are a hair away from another break above a short-term ceiling. That ceiling, of course, is last week’s high of $33.69. Notice how that approximate level was tested every day last week.

Bottom line - a move above $33.70 may negate the need for a pullback at this time, and instead inspire another bullish wave. A close under the 20 day line (not an intra-day low, but a close) at $32.70 could be an early warning of a selloff. A close under $31.23 could be a major signal of a short-term pullback. Stand by.

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I’m not surprised to see the chart of InterDigital Inc. (NASDAQ:IDCC) finally cool off. Over the last three weeks the stock rallied from $25.43 to $33.69 (a 32% pop) without looking back; over the last eight weeks that stock has rallied 48%, and only looked back once. In other words, it was due for a break. The question now is, what do we do about any pullback?

The answer is …. nothing, at least nothing yet.

The great part about jumping into a hot trend is that we can easily build a profit cushion right out of the gate. Our reader’s entry prices were mostly around $30.58, so we’re ‘up’ about 6.5% already. More importantly, we can tolerate a little downside volatility and still remain profitable.

That said, though we’re not going to be shaken out, now’s not the time to still be pouring money into the stock either.

This chart looks like a short-term peak. The pace was strong, but has leveled off over the last few days. That’s usually how so-called ‘rollovers’ materialize. And, as overbought as IDCC shares are right now, the odds of such a rollover are good.

Rather than fight the odds, let’s just let the chart takes its course. (We can’t make the chart do something it’s not going to do anyway.) In other words, let’s just observe all the profit-taking that’s apt to occur here and send the stock a little lower. We’ve got room to spare.

As for how far any pullback will take InterDigital shares, there are two likely landing spots. The first one is the 20 day moving average line (blue). It’s currently at $30.42, but rising every day. The other possible landing spot is $27.05, where the first key Fibonacci retracement level is resting. The former would let the stock revert back to a break-even for us; the latter would push the trade into the red. We can actually handle both though, as this trade’s destiny includes volatility no matter which direction it ultimately heads.

Anyway, just be advised IDCC could pullback for a few days, but we’re not worried about it. The bigger-picture bullish momentum is what we’re trading here.

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