It’s Still “Game On!” for Activision Stock Bears

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Activision stock - It’s Still “Game On!” for Activision Stock Bears

Source: Gamevil Inc. via Flickr

It’s been a losing battle for Activision (NASDAQ:ATVI) bulls, who have been stung by a nasty earnings-related retreat deep into bear territory. But if you’re looking for Activision stock to rebound soon, think again, as the ATVI stock chart indicates that the bears are ready to mount another offensive.

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As I’ve said before, the gaming industry dwarfs Hollywood and it’s only going to get bigger in coming years. The gaming sector is being boosted by exciting markets like eSports, mobile and first-person shooter games, all of which are exploding in popularity. Another positive catalyst for the sector is its expanding, more inclusive demographic base.

The bottom line is that gaming is, and will be for some time, a terrific, continuous- growth market. And as an industry leader, ATVI stands to benefit from this trend. But that’s not to say that video game makers won’t lose any battles along the way. Right now, Activision stock is losing battles off and on the price chart.

ATVI Slumped After Its Earnings

Late last week, ATVI announced weaker-than-forecast profits, reduced its guidance and reported its third straight quarter of declining monthly active users (MAUs). While the latest game in ATVI’s wildly popular Call to Duty franchise, Black Ops 4, has smashed its share of records since debuting in late October, an ambush from free-to-play games such as Fortnite Battle Royale has helped put a chink in the armor of Activision stock’s bullish outlook.

ATVI Stock’s Chart

And what about the price chart of ATVI stock? It’s not a “game over” situation like the scenario  that Atari faced back in the day. But it appears that the bulls’ efforts to hold back the bears will fail, so another retreat by Activision stock looks to be in the works.

Source: Charts by TradingView

About a month ago, I warned that the long-standing bull run of Activision stock was about to end. My forecast was largely supported by ATVI’s weekly chart. The technical picture showed a bearish divergence in stochastics as the shares pressed grudgingly higher from a couple of weak bases. In our estimation, ATVI stock was poised to undergo a corrective breakdown.

The forecast proved prescient as ATVI stock quickly dropped below a weekly hammer low of $73.23 and never looked back. After falling nearly $20 further, Activision stock is challenging an area of price support defined by three Fibonacci levels.

With the shares sporting oversold stochastics and sitting outside the lower Bollinger Band, looking to buy ATVI stock might appear reasonable. And with the daily chart having formed a wide-range doji decision candle followed by an inside candlestick, looking to buy Activision stock after a 36% plunge may even seem like a great move. And in another healthier market climate, I’d wholly support that optimism.

Unfortunately, in today’s challenging market environment, most oversold situations will become more oversold. After so many growth names were hit even harder than ATVI stock, “cheaper” stocks don’t necessarily provide good value right now. Meanwhile, an air pocket has formed on the price chart right below the immediate post-earnings low, and ATVI stock has no discernible technical support until roughly $47 – $48. As a result, we think that the bears are poised to push Activision stock lower.

For bears willing to short ATVI stock, I recommend shorting below the daily chart’s doji low of $53.50 for a brief period of time. In the event bulls do manage to mount an attack, a $2.10 money stop above $55.60 keeps a potential loss to roughly one-third of the expected reward. It will also prevent much higher losses which could materialize, given a sizable gap which could come into play.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and on StockTwits under the same name.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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