Activision Blizzard (NASDAQ:ATVI) has been on fire, and rightfully so. The video game industry is seeing elevated levels of demand, as consumers continue to flock to at-home entertainment solutions amid the novel coronavirus. As such, ATVI stock could be bound for new highs.
The stock previously topped out in October 2018, hitting a high of $83.46. That was a tough quarter for the stock market and for Activision in particular.
Shares shed 17% in October and almost 28% in November, on its way to falling 44% in Q4 2018. However, ATVI stock bottomed a few months later and has been grinding back toward those highs ever since. Now working on its fifth straight month of gains — even rising in March — let’s see why investors may want to bet on continued momentum in the name.
Long-Term and Short-Term Catalysts
The new virus has dealt a devastating blow to the global economy. Be it for the travel industry or the local watering hole. It has been tough on everybody as unemployment ripped higher and sent the world into various states of lockdown.
For gaming companies though, this was like gasoline on the fire. Video game sales erupted in March, April and May. That goes for hardware, software and accessories as gamers look to kill their time in lockdown with various video game platforms.
In the short-term, that’s where we see opportunity, as well as risk. On the one hand, this short-term jolt in sales was quite welcomed among Activision, Electronic Arts (NASDAQ:EA), Take-Two Interactive (NASDAQ:TTWO) and Nintendo (OTCMKTS:NTDOY).
On the other hand, the sales surge will eventually cool. Case in point, June video game sales jumped “just” 26% year-over-year. On the plus side for ATVI stock, a big part of that slowdown was attributed to hardware (console) sales, as new refreshes are in the works. Software (games) sales remained strong, up 49%.
Ultimately, Covid-19 has been a boon for gaming sales and while this force is starting to slow a bit, I would expect it to continue acting as a tailwind. That being said, the video game industry is also enjoying long-term secular growth.
Activision CEO Bobby Kotick said that, “We have 350 million users in 190 countries … I see no reason that number shouldn’t be 1 billion in five years.”
That comment was made near the end of 2019, but just goes to show where industry executives see the trend going. While the coronavirus may stoke some short- and intermediate-term momentum, the long-term trends have been working in Activision’s favor even before the pandemic.
Trading ATVI Stock
Earlier I mentioned that ATVI stock has been rising for five straight months. It’s also up in 11 out of the past 14 months. The price action here is actually pretty healthy, as shares formed a nice multi-month base a year ago before pushing higher. That base can be seen on the weekly chart above (circled in blue).
Activision has been chugging higher, as it continues to ride the 10-week moving average to new 2020 highs. Up 61.3% from the lows, the stock sure has done a good job over the last few months. However, it’s directly in-line with the Nasdaq Composite, which is up 61.4% from the March lows.
Can ATVI stock begin to outperform the Nasdaq and continue even higher? To do so, shares will need to test and eventually clear the 2018 high, at $83.46. Above that puts the 261.8% extension in play near $87.
On the downside, bulls will want to see ATVI stock hold the 10-week moving average and the $75 to $76 area. Eventually though, some digestion and basing would be healthy before a resumption of the rally.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.