This column was originally published on RealMoney on April 4 at 10:51 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Earlier this decade, Microsoft (MSFT - Get Report), Sony (SNE - Get Report) and Nintendo released a new generation of gaming consoles that delivered stunning graphics, addictive titles and heart-pounding action.
But the industry has fallen into a major funk this year, held down by a range of issues that are undermining profitability.
Activision (ATVI - Get Report) has one of the hottest titles on the market right now, with its Call of Duty sequel. But that hasn't stopped the Santa Monica-based company from running into the same critical issues as its competitors. Notice how the stock topped out last year, printed a small double top, and then broke down in a volatile correction. Now take note of how the stock broke support right after Microsoft's limited Xbox 360 release in November. It finally bounced in March and now shows the first stage of a sideways pattern that could last a very long time. Unfortunately, accumulation hardly budged in the recent uptick, so investors still aren't finding much to love here. THQ (THQI) is best known for its World Wrestling Entertainment titles and was the only major gaming company to meet sales projections last year. This solid performance let the stock avoid most of the selling pressure suffered by its competitors. Indeed, this looks like the best opportunity for anyone who wants to play the gaming sector. Notice how price hit a new high in January, dropped through its 50-day moving average, jumped back across it and bounced sharply last week. The transition of these events sets the stage for a rally back to the three-month high. In the longer term, this stock also shows a multiyear breakout pattern that should trigger on a rally up and through $30. Konami (KNM - Get Report) is the biggest gaming operation you've probably never heard of. It's a well-capitalized Japanese company that's released dozens of popular gaming titles, such as Metal Gear Solid. It's also a conglomerate with key operations outside of multimedia software. This diversity has helped its stock performance in recent months. It's interesting that price action is moving in the opposite direction of most American gamemakers. In fact, the stock bottomed out at exactly the same time that Microsoft released Xbox 360 and moved higher in a strong rally throughout the first quarter. But price has now reached key resistance at $26 and could selloff to $20 before it recovers. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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