Game Over for Toy Stocks?

by Serge Berger | July 18, 2013 8:55 am

Toy-makers Hasbro (HAS[1]) and Mattel (MAT[2]) saw stellar gains for much of the 2013 market rally, but the going has gotten significantly choppier ever since the May 22 highs in the S&P 500, and again yesterday when Mattel reported its latest earnings.

Second-quarter net income for Mattel slipped 24% to $73.3 million from $96.2 million in the year-ago period. MAT shares got whacked to the tune of nearly 7%.

On the weekly chart, the multiyear stealth rally of Mattel is notable. More importantly, see how the stock accelerated out of its longer-standing trading channel earlier this year. There’s a thing called “mean reversion” — and as it applies to Mattel, it likely means the stock, over time, needs to work back down into this channel to anywhere between $36 and $41.

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From a multiyear perspective, Hasbro looks equally concerning — at least in the medium-term. The stock’s late 2012 top was marginally retested at the May highs this year, and that led to a fairly sharp move lower. With yesterday’s earnings news out of Mattel, HAS also dropped in kind, to the tune of 2.4% … and by so doing put in place a lower high vs. its May highs.

So you know, Hasbro is scheduled to report its earnings on July 22 before the bell.

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On the closer-up daily chart of Mattel, note that with yesterday’s post-earnings drop, the stock confirmed a meaningful double top and also took out important horizontal support around the $44 mark. From here, next support sits around the 200-day simple moving average, which currently is near $40.70 and also coincides with the upper end of the longer-standing trending channel discussed above.

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In summary, while Hasbro still has to report its earnings next week, the signs from both the near- and longer-term charts of these toy-makers point toward continued pressure on shares — at least for the time being.

Serge Berger is the head trader and investment strategist for The Steady Trader[3]. Sign up for his free weekly newsletter here[4].

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