Gaming stocks scored monster gains during our decade-long bull market. But with market jitters now coming home to roost, these high multiple growth stocks are finally receiving their comeuppance.
The selling pressure came to a head last week when industry leader, Activision Blizzard (NASDAQ:ATVI), cratered 12% on disappointing earnings amid shrinking monthly active users. Momentum traders are now witnessing the double-edged sword nature of playing with high-octane stocks. What momentum rapidly giveth, it can rapidly taketh.
Weakening fundamentals plus deteriorating technicals is a toxic brew for once-healthy companies. And nowhere is this more obvious than the video gaming space.
Let’s investigate three video game stocks to sell.
Activision Blizzard (ATVI)
The relentless unwinding in Activision Blizzard has been painful to watch. The once-mouthwatering 34% year-to-date gains have quickly turned into a 13% loss. Shareholders hoping the worst is behind them need to remember ATVI stock sat as low as $26 a mere two years ago, so it has plenty of room to fall if traders start questioning the narrative and numbers that drove it to this year’s lofty heights.
On the fundamental front, ATVI stock has now suffered three consecutive quarters of declining monthly active users due in part to competition from free-to-play games like Fortnite Battle Royale.
With last week’s epic earnings gap now looming overhead, expect dismal price action from ATVI for the coming quarter.
Sell the Dec $60/$65 bear call for around 70 cents.
Electronic Arts (EA)
The demise in Electronic Arts (NASDAQ:EA) has been as consistent as it has been severe. Since peaking at $151.26, EA stock has shed 43% of its value. Though the losses certainly qualify as dramatic, all EA has done is returned to where it sat heading into the summer of 2017.
So it’s not as if we’re at deep value levels here. What is perhaps most unnerving about the selling is it’s taking place while the broader market remains a stone’s throw from all-time highs. It makes you wonder what type of damage will be inflicted in EA if a bona fide bear market descends across stocks as a whole.
EA suffered a fresh breakdown on Friday, suggesting more downside is imminent. To capitalize, buy the Jan $90/$80 bear put spread for $4.15.
Take-Two Interactive (TTWO)
Compared to its predecessors, the losses in Take-Two Interactive (NASDAQ:TTWO) haven’t been nearly as bad. But the downside momentum is accelerating post-earnings. Since its initial gap higher on Thursday after its quarterly report, TTWO stock is down 17% on heavy volume. The decline now places TTWO stock into bear country, below its 200-day moving average.
With the entire sector falling out of favor, I suspect TTWO will see downside pressures remain. Support was found near $93 earlier this year, so consider that the next downside target.
Buy the Jan $110/$100 bear put for $4.45.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.