It’s not Atari (OTCMKTS:PONGF). Still, conditions remain challenging for Activision (NASDAQ:ATVI) bulls and one where bears are readying to mount another offensive strike and profitable victory in ATVI stock.
Let me explain.
Let’s start by reiterating what I pointed out above: ATVI stock isn’t a “game over” situation like bankrupt 80’s gaming sensation Atari. And as I’ve said before, the secular prospects for the gaming industry backed by exciting markets and an expanding and an emerging and more inclusive demographic base, certainly look strong over the long haul. But short-term hardships shouldn’t be ignored either.
In today’s market, ATVI is feeling the heat from competition like privately held Epic Games and its free-to-play gaming sensation Fortnite, as well as peers like Take Two Interactive (NASDAQ:TTWO) and Electronic Arts (NASDAQ:EA). And as warned in mid-November, Activision shares aren’t above losing quarterly battles or beyond preventing bearish assaults in the ATVI stock price in the short-term.
Now and following February’s weak quarterly report and below-views guidance, combined with a weak-looking Activision stock chart, shares are once again in the bears’ technical crosshairs.
ATVI Stock Weekly Chart
Our November forecast calling for a short of ATVI near $53.50 proved spot-on with bulls failing to put up any type of fight and shares falling by an additional 25% at their recent low in mid-February. But despite an overall and unusually large correction of 53% since early October, I still see no reason to fight a friendly looking bearish trend. In fact, I see a short entry.
ATVI Stock Trade
In this strategist’s view, if ATVI stock trades beneath last week’s doji low of $41, shares will be in position for shorting. Currently, Activision stock is trading in a two-plus week inside consolidation pattern within a larger doji. A move through $41 should serve as an early entry for a continuation trade and breakdown to new lows.
For money management, if ATVI does signal a short entry I’d use $43.65 as a stop-loss. That amounts to manageable exposure of around 6.5%. It also serves to smartly (maybe) exit the position 1% above last week’s doji high in the event we’re overestimating Activision’s bearish downside potential.
On the downside, the first level of potential support is near $38.50, which maintains the 62% retracement level from ATVI’s November 2012 corrective low. However, I wouldn’t be too quick to take profits.
With stochastics just turning lower, I believe ATVI stock bears will be gunning for $32.50 — $35. That area holds 2000’s 62% Fibonacci level and weekly Bollinger band support. And given ATVI’s current bearish tendencies, that price zone looks a good deal more technically compelling with regards to a meaningful low and maybe a grand finale where today’s bearish trend might be completed.
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 StockTwits.