Gaming stock Activision Blizzard (ATVI) - Get Report reports earnings after the closing bell on Thurs., Aug. 8 with the stock poised for a "golden cross" on its daily chart, indicating a rally to come. The stock opened above its 200-day simple moving average at $47.92 Thursday morning, which targets its "reversion to the mean" at $52.01 on its weekly chart. My call is to buy the stock up to its annual risky level at $52.49 as gamers compete for huge cash prizes at Video Gaming Tournaments.
Competitor Take-Two Interactive Software (TTWO) - Get Report reported better-then-expected earnings after the close on Monday as their Grand Theft Auto gaming platform performed better than expected. Shares of Take-Two popped 12% over the last two days, ignoring stock market volatility. Activision has been a laggard so guidance on its "Call of Duty" platform will be an important driver of moving the stock higher.
Activision closed Wed. at $48.10 up just 3.3% year to date, but it's in bull market territory, 20.7% above its 2019 low of $39.85 set on Feb. 11. The stock is consolidating a bear market of 52% from its all-time intraday high of $84.67 set on Oct. 1 to its Feb. 11 low of $29.85.
Analysts expect Activision to earn 26 cents to 30 cents per share when it reports after the closing bell on Thurs., Aug. 8. The stock is reasonably priced with a P/E ratio of 19.97 and a dividend yield of 0.80%, according to Macrotrends. Some say this gamer will continue to lag as it did not release any new games during its second quarter. On the other side of the coin, there have been Wall Street upgrades. KeyBanc resumed coverage with an overweight rating. Bank America Merrill Lynch upgraded the stock to buy with a $56 price target. They like the "Call of Duty" franchise.
The Daily Chart for Activision
Courtesy of Refinitiv XENITH
The daily chart for Activision has been below a "death cross" since Nov. 19, but the 50-day and 200-day simple moving averages are converging at $46.49 and $47.92, respectively, and thus a "golden cross" will soon be confirmed on a positive reaction to earnings. A "golden cross" occurs when the 200-day rises above the 50-day to indicate that higher prices lie ahead. The horizontal lines are the monthly value level for August at $42.95, the annual risky level at $52.40, the third-quarter risky levels at $62.72 and the second-half semiannual risky level at $76.37.
The Weekly Chart for Activision
Courtesy of Refinitiv XENITH
The weekly chart for Activision is positive, with the stock above its five-week modified moving average of $47.28. The stock is below its 200-week simple moving average or "reversion to the mean" at $52.01, which is an upside target. The 12x3x3 weekly slow stochastic reading is projected to rise to 68.49 this week up from 64.13 on Aug. 2. As 2019 began, this reading was 6.97, well below 10.00, which made the stock technically "too cheap to ignore."
Trading Strategy: Buy Activision up to its annual risky level at $52.40 and add to positions on weakness to the monthly value level at $42.95. Reduce holdings on strength to the quarterly and semiannual risky levels at $62.72 and $76.37, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.