It’s not Atari. But a third strike for guidance from Activision (NASDAQ:ATVI) does point to a ‘game over’ situation for ATVI bulls and a playable short for Activision stock bears.
I’ve said it before and I’ll say it again, it would be hard to imagine Activision stock going bankrupt like 1980’s gaming sensation Atari. With about 2.5 billion people gaming globally and growing steadily — as well as new trends like mobile, eSports and emerging free-to-play titles — the secular prospects for gaming and for one of the industry’s giants simply look too strong over the long haul.
Still, Activision’s short-term hardships shouldn’t be ignored either. This past week the company beat Street profit and sales views, but both its top and bottom-lines also shrank year-over-year. Possibly worse, the report also marked ATVI stock’s third straight sales whiff or strike regarding guidance.
It’s obvious Activision stock is in need of a reset of sorts. But amid intense industry competition from rivals Take Two Interactive (NASDAQ:TTWO), Electronic Arts (NASDAQ:EA) and Epic Games, with no immediate game-changing product launches to help break the slump for ATVI, a third strike on the price chart doesn’t look favorable either, unless you’re a bear.
Activision Stock Daily Chart
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Without a catalyst, InvestorPlace’s Will Healy recently predicted ATVI stock will remain rangebound. I can appreciate the logic. But volatile stocks like Activision don’t generally just bide their time for months and months on end. I’d surmise that by the time we see a frustrating congestion pattern as going nowhere, that’s typically when it’s closer to over than not. And for ATVI stock, that ‘over’ is unlikely to please bulls.
Technically, and bearing in mind Activision’s existing difficulties off the price chart, a closer inspection of ATVI stock’s range bound activity looks increasingly like a strikeout situation for bulls. The latest warning from the company took shares from a position of potential strength within a possible uptrend which began in early February — and into a position of weakness.
ATVI’s post-earnings reaction pressure has put shares back beneath two key trend-lines and once again finds the stock struggling with the 50% retracement level dating back to 2012. That’s potentially bad news. And with stochastics rolling over, the price action looks even more questionable for bulls.
Possibly worse, Activision stock’s daily uptrend looks a lot like a weekly chart bear flag setting up for a bearish short.
Activision Stock Weekly Chart
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The larger time frame of ATVI stock reveals a weekly doji high has signaled to the downside this week. If traders are agreeable Activision’s uptrend could also be a bearish flag pattern, coupled with an overbought stochastics on the weekly chart and ATVI’s other discussed warning signs; it’s our contention bears maintain the home field advantage.
Activision Stock Short Position
My advice for shorting ATVI is to wait for shares to drop back beneath this week’s low of $46 which narrowly breached the prior week’s doji low of $46.16.
For containing risk, I’d initially use a blended stop price of $48.79. That amounts to exposure of 6% and marginally above the bodies of the past few weeks’ worth of candles. And in our estimation it also smartly allows bears to play ball in a game that favors playing, but also not overstaying one’s welcome.
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.
