Bulls Can Hit the ‘Start’ Button on EA Stock

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Video gamemaker Electronic Arts (EA) last Friday marked its daily chart with a notably bullish move during an otherwise sleepy trading day ahead of the three-day weekend. The bid in EA stock, which was the result of takeover talks in competitor companies, could now result in a juicy trading opportunity for the active investor.

beat the bell stock investing adviceOn Friday, rumors made the rounds that video gamemaker Activision Blizzard (ATVI) could buy competitor Take-Two Interactive (TTWO), which resulted in a rally for video game stocks. Shares of EA stock, while not part of the takeover talks, jumped 2% on Friday in what has been a good year-to-date run.

Takeover talks aside, the major video gaming stocks have been acting well all year, and the rally in the broader stock market off the early August lows also put those stocks back into a positive posture.

Considering the broader market’s strength of late, it is not surprising to see traders flock to momentum like this.

EA Stock Charts

As we look at EA stock’s multiyear chart stretching back to its all-time highs in 2005, note that this year’s rally has taken shares back to a diagonal resistance line dating back to those highs. The stock bumped into this line in July and has been consolidating sideways since. Naturally, such a major resistance line won’t be surmounted by the first try, so the pause of the past couple months is a constructive sign.

Note that momentum (measured by the relative strength index) bottomed in late 2008, and when price dipped to a marginally lower low in July 2012, momentum made an important higher low. This type of positive divergence ultimately led to the sharp 2013-14 rally and remains intact.

EA stock charts weekly
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On the daily chart, note that when EA stock bottomed in early August, it did so around lateral support, which also coincided with the rising 100-day simple moving average. By late August, Electronic Arts had just about worked its way up to the July highs, but pulled back. Last Friday’s 2% rally painted the daily chart with a so-called engulfing candle, and this type of bullish price reversal now looks to favor a move to new all-time highs.

Note that last Friday’s rally wasn’t supported by any jump in volume, but that is somewhat excusable considering the broader market also didn’t see much volume on the day before the Labor Day weekend.

EA stock charts daily
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Active investors could consider buying EA stock around the $38 area for an eventual break toward $41. Any quick bearish reversal of last Friday’s move would nullify the setup.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/ea-stock-electronic-arts-charts/.

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