Activision Traders Should Watch This Indicator

What's the best strategy for trading Activision Blizzard?
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Shares of Activision Blizzard (ATVI), the video game company that produced Call of Duty and World of Warcraft, dropped 5% last week after the company reported second quarter earnings. Does this decline present a buying opportunity, or should investors avoid the stock?

Like most video game makers, Activision is a beneficiary of Covid-19 pandemic. The company reported non-GAAP earnings of 75 cents per share, vs. expectations of just 43 cents per share. Bookings jumped 72% vs. the prior year's quarter. 

Despite Activision's strong quarter, the stock dropped after the company's earnings report. How should traders approach Activision now? Let's go to the chart to find out.

Activision (ATVI). Charts by TradeStation

Activision (ATVI). Charts by TradeStation

Activision is in a long term bull channel, represented by the parallel lines. The reaction to the stock's earnings report knocked Activision to the bottom of that channel. That location is considered a strong entry point, and creates an opportunity to buy this stock well off its highs. 

How will traders know if it's time to get out of this stock? Take note of Activision's 50 day moving average, in green, currently located near $77.50. Traders who buy now can exit with a small loss if the price drops below that green line. In trading, keeping losses small is the name of the game. 

Activision has gained a lot of new fans this year. If the company can keep those clients engaged after the pandemic ends, the stock could go much higher. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.