Three weeks ago, I compared video game developer Take-Two Interactive Software Inc (NASDAQ:TTWO) with bigger rivals like Electronic Arts Inc. (NASDAQ:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI). I pointed out Take-Two was more interested in extracting as much value from few titles. Conversely, EA and Activision prefer to publish as big of a library as possible.

Both schools of thought work for their respective companies, judging from their performances this year. ATVI and EA stock are up 78% and 37%, respectively, for the year so far. And TTWO stock is up a whopping 119%. It doesn’t seem like the party will ever end.

But I’ve got a sneaking suspicion that’s exactly what’s in the cards for the near future. Alhough the TTWO news is still leaning in a bullish direction and earnings continue to grow, the stock is itching for a short-term — though significant — pullback.

It’s a buying opportunity to be sure. Just be sure you don’t end up cutting yourself trying to catch a falling knife.

TTWO Stock Is Right, But at Wrong Time

As a refresher, one of my chief observations from late November:

“While EA and Activision see more success from some game franchises than others, each strives for a diversified portfolio of games. But owners of TTWO stock know the company has focused on squeezing as much life as possible out of just a small number of proven titles like its Grand Theft Auto series.”

It’s not just Grand Theft Auto, by the way. Take-Two Interactive is the name behind Red Dead Redemption and Sid Meier’s Civilization games. Beyond that, however, the average investor (and even the average gamer) struggles to remember titles from the company’s relatively limited library.

As I said at the time though, the quality-over-quantity thing works for Take-Two Interactive. Its growth has been impressive, even if a bit choppy — the norm in the video game business.

The stock, however, has simply traveled too far, too fast, since 2014. Up more than 500% since the end of 2013, a lot of people are understandably ready to take profits.

Now it looks like they’re starting to.

TTWO Stock’s Charts Speak Volumes

Take a look at the weekly chart, just for perspective. The rally has been nothing less than incredible. Most of it has taken shape in just the past few months. Click to Enlarge

There’s a downside to such a move though — it sets the stage for a pullback that’s just as rapid, and perhaps just as big.

And cracks are already starting to show.

One has to zoom in from the weekly to the daily chart of TTWO stock to fully appreciate how uncertain the bulls have become just since late November. It’s on this chart we can see how quickly things came unraveled three weeks ago, when Electronics Arts ran into a revolt over the difficult and costly hurdle of simply getting the most out of its new Star Wars: Battlefront II title.Click to Enlarge

Microtransactions, or in-game purchases, have become overwhelmingly expensive. Though EA bore the direct brunt of the game-player pushback, TTWO stock took a hit as well. And it’s not as if Take-Two is guilt-free on the whole “loot box” matter.

But here’s the truth. The prod for the pullback wasn’t explicitly the brewing end of in-game purchases, which are a huge part of the gaming industry’s revenue. It was, more than anything else, a convenient reason to lock in some of the gains TTWO stock has dished out since the beginning of 2014.

The good news is Take-Two Interactive Software shares found perfect support at the 100-day moving average line (purple). And it made a nice recovery move. The bad news is TTWO shares couldn’t even crawl back above the 50-day moving average line (blue) before slowing down again.

It’s not an encouraging sign. Should the stock start to slide lower again and break under the 100-day moving average line, currently at $101.46, it may kickstart a selling avalanche. There’s a ton of pent-up profits to be taken here.

Looking Ahead for TTWO Stock

While my fear is that a selloff is in the cards, don’t let that deter you from interest in Take-Two Interactive, the company. The things Take-Two has been doing that make it great are still being done. The stock simply gotten ahead of results. Now it’s time to fix the error. A relatively small pullback could do the trick.

So where exactly might that low be?

There’s no great technical context on the chart to use as a potential future floor — one of the downsides of a parabolic move like the one we’ve seen here. There is a methodology we can use, however.

The short version of a long explanation: Fibonacci lines can be applied here to identify the most likely pullback points for TTWO stock. Based on the low from late 2013 that ultimately served as a launchpad for this multi-year low (a floor that was resistance a few times between 2011 and 2013), the nearest plausible retracement level is $80.55, which interestingly enough was a short-term peak earlier this year.

A 25% pullback from its current price sounds outrageous. Even more outrageous is that a dip to $80.55 would be a 33% pullback from November’s high. Just bear in mind Take-Two shares are up 500% since the beginning of 2014, and are up more than 100% year-to-date. Big rallies invite big reversals.

Even if it’s not $80.55 exactly though, there’s a lot of profit-taking risk here. Any dip is a buying opportunity, but don’t jump the gun.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.