After sprinting to new all-time highs of $40.31 at the start of the year, China Mobile Games and Entertainment Group Limited (CMGE) quickly descended to less than half those levels, where it now resides around the $18 mark.
But a technical check of CMGE’s chart shows that it could be gearing up for another run to $40 and beyond.
The company, which was recently added to the NASDAQ Golden Dragon China Index, creates games for mobile devices, and boasts of portfolio of 717 offerings to keep mobile users busy. Growth estimates for CMGE are in the triple digits for this and next year, and the technical picture for the stock price shows a similar trajectory for the intermediate term (six weeks to months).
After putting in short-term bullish Relative Strength Index (RSI) and MACD signals at the April 16 close, and intermediate-term Bullish Continuation Wedge pattern also emerged on CMGE’s chart.
A Bullish Continuation Wedge tells traders that after a temporary interruption, the prior uptrend is set to continue. A Bullish Continuation Wedge represents a temporary interruption to an uptrend, taking the shape of two converging trend lines both slanted downward against the trend. Leading up to a Bullish Continuation Wedge is essentially a battle between bulls and bears, as the bears attempt to take over the bulls. However, in the end, the bulls win out as the break above the upper trend line signals a continuation of the prior uptrend.
The Bullish Continuation Wedge occurred on significant volume of 424,660 shares.
CMGE’s technical pattern puts an upside target for the stock at $40.00 to $44.00 expected to resolve in approximately 32 trading days, or nearly by the end of May. From current levels as of this writing, this gives a potential 120% to 143% return in about six weeks’ time.
However, traders should be aware that while support for CMGE resides at a floor of $17.00, strong resistance lives at $19.22. Cautious traders may consider initiating positions only after CMGE breaks through resistance; if the pattern plays out as expected, there will be plenty of upside ahead.
While growth estimates for CMGE are resoundingly bullish, the reliability of figures and reporting from Asian outfits is deserves some caution, so prudent traders should entertain using a stop. While Profit Scanner members can set individualized stops based on their own risk tolerance, using the support and other technical factors, a good stop-loss point for the average trade would be to exit positions if the stock closes below $16.66.
At this time, options are not offered on CMGE, so traders who want to act will need to stick to buying the shares.
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