October is off to a volatile start with bears taking ownership of the day-to-day market battles thus far. But video game stocks Take Two Interactive (NASDAQ:TTWO), Sony (NYSE:SNE) and Zynga (NASDAQ:ZNGA) remain in position for winning the war on their respective price charts.
It has been a tough start to the month and one which has the looks of confirming historical tendencies for more difficulties ahead for bullish investors. For its part the S&P 500 has already given up all of September’s gains after logging an all-time-high just last week. And video game stocks haven’t been immune to the wave of selling pressure either.
Industry leaders Activision (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) are off roughly 2% and 2.75% respectively intraday in Wednesday’s session. Compared to the broader market’s own loss of 2.35%, EA stock and ATVI could chalk up the weakness to being systemic in nature. But the weekly price charts have proven a good deal more challenging with losses of nearly 40% since hitting all-time-highs in 2018.
But don’t foolishly lump all video game stocks together. The fact is, the global gaming market is worth about $135 billion. It’s big business. More important, it’s one whose secular trend continues to grow in the high single-digits. And that spells likely opportunity for investors in other industry leaders which continue to demonstrate their strength on the price charts and remain in position to play potential breakouts.
Take Two Interactive (TTWO)
Take Two Software is the first of our video stocks to buy. This wildly popular publisher of video games such as the “Red Dead Redemption” franchise is setting up in corrective cup pattern formed over the last year after hitting all-time-highs.
Currently, shares are putting together a potential smaller handle consolidation within the large base. The pullback remains constructive, but I’d like to see a low develop which continues to hold the 62% level near $119 without risking the integrity of the overall pattern.
The strategy here is simple. Watch for technical support to hold and TTWO stock to develop a weekly reversal candlestick formation. With this video game stock’s stochastics nearing oversold conditions, if price action does confirm a bottom, a purchase, along with a stop-loss beneath the pattern low, looks good for positioning.
Entertainment giant Sony is our next video game stock to buy. Shares of the maker of the PlayStation gaming console and cloud-based gaming services are also carving out a cup-shaped base with handle not unlike TTWO stock’s bullish price pattern. Here though, the highs of the formation just cleared SNE stock’s 38% retracement level dating back to the Dot.com crash.
The interpretation in Sony is shares are due for a period of out-performance after badly lagging the broader market for years. As much, a breakout from this classic pattern through the 38% level, rather than buying on weakness with a questionable stochastics set up, is the best approach to confirming this outlook.
Zynga is the last of our video gaming stocks to buy. ZNGA stock has pivoted from being a recognized publisher of browser and PC-based games into a much more secure mobile-first platform. The successful transition has overall allowed Zynga to enjoy earnings and sales growth and boost the company’s operating cash flow in the process.
ZNGA’s prospects look equally good on the price chart as well. After going public in 2012 shares of this video game stock came under hard times. But the turnaround in the company’s business fortunes has been appreciated by investors. Since 2016 shares have trended strongly and are now challenging its five-year highs. And the price action is beginning to shape up for ZNGA stock as a buy.
For ZNGA stock, I’m looking for shares to form a high-level double bottom pattern while holding above the 38% retracement level near $5.40. For buying this video game stock though, I’d wait for a bit of pattern confirmation.
I’d advise allowing this video game stock to move above the pattern’s mid-pivot September high of $6.22 and firmly back through Zynga’s 5-year high before a purchase is considered. From there, respecting the pattern low and looking to take initial profits between $7.00 – $7.50 looks appropriate.
Investment accounts under Christopher Tyler’s management do not currently own positions in 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 market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits