One of the video game business' biggest names is set to report its fourth-quarter numbers after the bell today -- and the price action could be setting the stage for a big buying opportunity at the same time.
Activision Blizzard Inc. (ATVI) has fared better than most so far in 2018, holding onto 6.5% gains year-to-date in spite of the recent selloff in stocks.
Activision reports its Q4 numbers this afternoon. Wall Street analysts are looking for profits of 92.5 cents per share, on average. Historically, Activision has a solid history of beating analyst estimates, posting positive surprises in nine of the last 10 quarters. Those surprises have historically come with big upside reactions as well.
But the situation in Activision is a little more interesting this quarter, as the price action signals a major potential buying opportunity just ahead of Q4 numbers.
To figure out how to trade it, we're turning to the chart for a technical look:
Activision is selling off almost 3% in advance of earnings, a dip that's actually shoving shares down to just above a key support level at $66. That's the same support level that acted like a line in the sand during Monday's big selloff and Tuesday's rebound - and it's coming back into play today.
That $66 price tag has actually had technical significance stretching all the way back to last September, when it acted as a resistance level for shares. Activision broke out above that $66 price thanks to a bullish inverse head and shoulders pattern in early January, rallying another 14% higher from there before the correction set in at the start of February.
Simply put, the price action in Activision so far this year has been incredibly technically obedient. And that's a good thing for investors thinking about trading it from here.
Relative strength, the indicator down at the bottom of Activision's price chart, adds some extra confirmation to the bullish undertones in this stock right now. ATVI's relative strength gauge signals that this stock is still systematically outperforming the rest of the broad market despite its recent correction. As long as those higher lows in relative strength stay intact, shares are predisposed to keep on outperforming.
From here, the next buy signal comes on the next upward bounce off of our $66 price floor.
In this case, waiting for earnings to hit before pulling the trigger on a trade makes sense from a risk-management standpoint - it's crucial to way for buyers to step in and assert themselves before buying shares yourself. If shares react positively tomorrow, Activision is a buy.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.