Video game maker Activision Blizzard (NASDAQ: ATVI) announced earnings results earlier this month, and the results of that earnings report allowed the stock to jump through resistance and hit an all-time high. Analysts were expecting the company to earn $0.07 per share and instead the company reported earnings of $0.16 per share. Revenue also came in above expectations.
The $24 level had acted as resistance in the past, but the day after the earnings results were announced Activision Blizzard stock blew through the $24 level and eventually topped out at $25.77 before rolling over a little.
The slight rollover in the last few days has caused the slow stochastic readings to make a bearish crossover and it has allowed the 10-day RSI to move out of overbought territory. This little breather for the stock will probably be good for it in the long run, as the daily and weekly charts were showing that the stock was overbought.
So far in 2015, Activision Blizzard stock is up almost 28%, and the weekly stochastic readings reflect what a run it has been on. The stochastic readings have been in overbought territory since the beginning of February and the 10-week RSI recently joined them in overbought territory. Both oscillators had not been in overbought territory at the same time since last September.
There are several patterns on the weekly chart that garnered my attention. First, we see the trend channel the stock has been in for the last 2 ½ years and the resistance at the $24 level. More intriguing to me are the three red boxes. Notice how the stock breaks out and then consolidates each time where there is a red box. Given the recent consolidation and then the breakout, it would not surprise me to see a similar development in the next few months.
One area that does concern me a little is the sentiment. The short interest ratio is neither bullish nor bearish at 4.20, but the analyst ratings could be a concern. All 21 analysts following the stock have it rated as a “buy.” Given those numbers, there is plenty of room for downgrades.
One other area of concern from the earnings report was that Activision’s biggest online multiplayer game, “World of Warcraft,” lost 3 million subscribers during the quarter. However, despite the loss of subscribers, the franchise still has more than 7 million subscribers.
One other item of note regarding Activision is that the company is planning to launch a new game next month and the gaming world is anxiously awaiting the “Heroes of the Storm” franchise.
While the stock looks like it is ready to take a quick breather, I think that could be the perfect time to buy the stock. If it pulls down just a tad to the $24 level, the former resistance point will likely act as support now.
I would look to buy Activision Blizzard stock in the $24 t0 $25 range with a targeted gain of at least 50% over the next nine months to a year. If the new game franchise is as successful as most of its other releases, “Heroes of the Storm” could propel the stock to new heights.
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