Call Of Duty creator and Nasdaq-100 component Activision-Blizzard, Inc. (ATVI) reports earnings after the bell on May 4, with gamers and market players looking forward to an industry snapshot that should confirm continued growth. Rival and co-component Electronic Arts (EA) reports on May 9th, with their combined $68-billion market cap highlighting the game world’s coming of age since Mario and Pacman first hit the arcades in 1981.
The gaming industry has reached a major inflection point, with Xbox and PlayStation consoles dipping their toes into the virtual reality waters but failing to develop killer apps that build new sales momentum. This has forced hardware makers to market relatively minor updates as new product lines, signaling a holding period that could last for several years. No one is complaining in the meantime because endless iterations of popular franchises continue to pay the bills.
ATVI Weekly Chart (2007-2017)
The stock split six times in the last decade during an ascent from 45-cents to the 2008 high at $19.28. The rally corresponded with a fruitful period for the gaming industry, highlighted by rapid technological and graphics advancements that allowed gaming companies to add all sorts of real-time multiplayer features. It also marked the golden age of massive multiplayer online (MMO) gaming, dominated by Blizzard’s World of Warcraft.
It sold off into single digits during the 2008 economic collapse and turned higher in 2009, but the recovery effort came up short, stalling in the low teens ahead of a sideways pattern that persisted into a 2013 breakout. The stock finally completed a 100% retracement into the 2008 high that year, breaking out into 2014 and posting a series of new highs into the December 2015 peak at $39.93.
Price action into 2017 carved a rising wedge pattern with support near $40. It rallied into wedge resistance in March, in reaction to strong earnings, and broke out into April in a very bullish turn of events. This relative strength should limit downside if this week’s earnings fail to inspire buying interest while the upside also looks limited because the wedge has transformed into a rising channel, with resistance just above this week’s high.
EA Weekly Chart (2007–2017)
Electronic Arts has traded on the national exchanges longer than any other gaming company. It topped out in the low-70s in 2005 following a multi-decade uptrend and ground sideways for more than three years, ahead of a major breakdown during the 2008 economic collapse. Selling pressure eased at an 8-year low in the mid-teens while the subsequent recovery wave barely registered on the monthly chart, stalling in the low-20s.
A 2011 breakout attempt failed, with aggressive sellers taking control of a decline that undercut the bear market low by nearly 4-points, dropping the stock to a 13-year low. It jumped back above the prior low in 2013, setting off buying signals, and took off in a strong uptrend that reached 2005 resistance in 2015. A yearlong consolidation yielded a 2016 breakout that’s now reached within 6–points of psychological resistance at $100.
The stock has carved a rising wedge breakout like its rival, establishing new support near $85. However, it shows greater upside potential because a rising channel establishes resistance above $120, offering plenty of running room after it breaks out into triple digits. On the flip side, support near the wedge apex should hold through a post-earnings sell-the-news reaction unless the results are catastrophic.
The Bottom Line
Gaming software giants Activision-Blizzard and Electronic Arts report earnings in coming days, with both stocks engaged in powerful uptrends that’s are likely to grow stronger after first-quarter results.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>