Video-game sales have taken a dive in recent years, transforming the top industry names into chronic underperformers. This shortfall isn't surprising, given the total vacuum of fresh genres and gameplay in the last decade. However, these once-innovative companies also face a perfect storm of rampant piracy, shrinking budgets and fickle consumer tastes.

Sadly, this aging industry is less creative than Hollywood, dishing out sequel after mindless sequel, hoping their shrinking fan base enjoys endless variations of

Doom

and

Donkey Kong

. Motion-sensing devices, like Microsoft's Kinect, have added a dose of creativity but realistically, gaming's future depends on couch potatoes who don't get up too often to stretch their legs.

Web and smartphone games are also hurting the industry, shifting sales to video companies that squeeze big ideas onto little screens or get players to accept highly unpopular monthly fees.

Activision Blizzard's

(ATVI) - Get Report

World of Warcraft

is one of the few games to overcome the hurdle, but that phenomenon is now six years old, with every heir-apparent failing to draw mass interest.

Superfast Net connections and peer-to-peer sharing now allow gamers to pirate nearly every new title on the same day that it hits store shelves or online shopping carts. Companies that fight back with over-zealous protection schemes, like those used on

Electronic Arts'

( ERTS)

Spore

, have killed legitimate sales, because customers don't want to jump through hoops to play their games.

Finally, the 2008 economic collapse and its aftermath have decimated the industry's core market, with folks aged 18 to 30 having less disposable income in 2011, because of high unemployment rates and poor pay. This factor alone has hurt the video business tremendously and will continue to do so, because this particular demographic will be the last to find work as the recovery progresses.

Despite enormous challenges, the price charts of many video companies now show slow and steady accumulation by value investors and deep-pocketed institutions. In addition, year-over-year video game sales have finally stopped shrinking, after two tortuous years, with genuine upticks suggesting that consumers are buying new titles more aggressively.

Electronic Arts (ERTS) -- Daily Source: eSignal

Electronic Arts is a major case in point. After a long and painful decline, it is finally turning higher. The stock got crushed during the bear market, and after long uptrend it struck an all-time high at $71.16, but its misfortune actually began in 2005. The decline ended in early 2009, but the stock completely missed the broad recovery, turning lower in 2010 and undercutting the two-year low.

Aggressive buyers returned in February of this year, with price going vertical on heavy volume and reaching the 2010 high at $20.24 about seven weeks ago. The stock has been moving sideways since that time, grinding out the final stage of a cup-and-handle breakout pattern. A rally above resistance should generate a strong uptrend into the mid-$20s.

Majesco Entertainment (COOL) -- Daily Source: eSignal

Majesco Entertainment

(COOL)

benefits from an extensive portable platform catalog, but a multiplatform hit,

Zumba Fitness

, drove superior first-quarter profits and brand recognition. This is a small-cap play, valued at just $147 million, which rallied off a base near $0.50 in November, entering a strong uptrend that lifted over the 2009 high at $2.39 last month.

The stock has nearly doubled in the last four weeks, with price now trading near a five-year high. However, the uptick looks overextended and in need of a pullback, so I don't recommend taking long-side exposure right here. Instead, get this sector leader onto your watch list and wait for a downturn that tests new support between $2 and $2.50.

Take-Two Interactive (TTWO) -- Daily Source: eSignal

Take Two Interactive

(TTWO) - Get Report

is a broad-based multi-platform game manufacturer, best known for its

Grand Theft Auto

and sports titles. After the company was ordered to pay $20 million in damages for including a sex mini-game within a

Grand Theft Auto

title, the stock gapped down between $22 and $18 in September 2008,. That gap remains unfilled.

The stock returned to the gap in February of this year and turned lower in a lazy correction that's holding above support at the 50-day moving average. It's likely that price will eventually turn higher from this platform and test the two-month high, ahead of an uptrend that finally fills the gap. In turn, that should set up a long-awaited test at the 2008 high near $28.

THQ Inc. (THQI) -- Weekly Source: eSignal

Let's end this discussion with a video game stock that should be avoided at all costs.

THQ

(THQI)

was an industry superstar until 2007, when it topped out at $36.76 and entered a severe decline. It bottomed out with its industry peers in early 2009, hitting an 11-year low, but the recovery since that time has been nothing short of horrific.

The stock jumped to $8 in June 2009 and then failed to rally above that level last year. It has been grinding lower since that time, showing steady distribution, and now looks ready to test the 2010 low at $3.33. That's the last support level before the decline hits the bear market low. This is a bad situation, because the company could drop into obscurity if it doesn't find a deep-pocketed suitor.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider COOL to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Farley had no positions in stocks mentioned, although holdings can change at any time.

Alan Farley is a private trader and publisher of

Hard Right Edge

, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of

The Daily Swing Trade

, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in

Barron's

,

SmartMoney

,

Tech Week

,

Active Trader

,

MoneyCentral

,

Technical Investor

,

Bridge Trader

and

Online Investor

. He has written two books:

The Master Swing Trader

and

The Master Swing Trader Toolkit: The Market Survival Guide

, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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