Take-Two Takes Hit on Earnings Miss – Here’s How to Trade It

I do not show a value level for Take-Two Interactive. So my call is to sell strength to its annual and quarterly pivots at $119.37 and $120.26, respectively.
Author:
Publish date:

Take-Two Interactive Software (TTWO) - Get Report missed earnings-per-share estimates, ending the New York gaming software maker's streak of beating estimates in 16 quarters. 

Despite upbeat forward guidance, the stock opened Friday gapping below its 200-day simple moving average at $119.69, which had held earlier in the week.

My proprietary analytics do not show a value level and the stock is also below its annual and quarterly pivots at $119.37 and $120.26, which are levels at which to sell on strength.

Holiday spending for gaming software was strong. Here’s the analysis of the earnings report as compiled by TheStreet.com.

The stock is not cheap, with a p/e multiple of 24.8 and no dividend, according to Macrotrends. This is a momentum stock that now has a negative weekly chart.

Take-Two shares opened Friday at $116, down 5.3% year to date and in correction territory 15% below its 52-week high of $135.70, set on Aug. 21. 

The stock is still in bull-market territory 37% above its Feb. 27, 2019, low of $84.41.

Before the 2019 bull market, shares of Take-Two Interactive had a bear-market correction of 40%. This was a decline from its all-time intraday high of $139.91, set during the week of Oct. 5, 2018, to the Feb. 27, 2019, low of $84.41.

I continue to warn that volatility is significant for almost every stock I track. This is a tough market to trade, which makes the daily and weekly charts key road maps to follow.

The Daily Chart for Take-Two

The Daily Chart For Take-Two Interactive

The Daily Chart For Take-Two Interactive

Courtesy of Refinitiv XENITH

The daily chart for Take-Two clearly shows the 2019 bull market. 

Note that a golden cross formed on July 5, when the 50-day simple moving average rose above the 200-day SMA, indicating that higher prices lie ahead. This buy signal tracked the stock to its Aug. 21 high of $135.75.

The close of $122.43 on Dec. 31 was the input to my proprietary analytics. The annual pivot for 2020 at $119.37 and the first-quarter pivot at $120.26 failed to hold at Friday’s open. The first-half semiannual risky level is above the chart at $154.06.

The close of $124.64 on Jan. 31 was an input to my analytics. The risky level for February is above the chart at $137.80.

Note that the 200-day SMA at $119.70 is between the annual and quarterly levels and the stock gapped below it, ending the golden cross signal.

The Weekly Chart for Take-Two Interactive

The Weekly Chart For Take Two Interactive

The Weekly Chart For Take Two Interactive

 Courtesy of Refinitiv XENITH

The weekly chart for Take-Two is negative with the stock below its five-week modified moving average of $122.80. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $92.21. This has not been tested during the past five years. Without a value level, this is the downside risk.

The 12x3x3 weekly slow stochastic reading is projected to decline this week to 59.87 from 70.76 on Jan. 31. 

Before the Aug. 21 high this reading was 92.71, which is above the 90 threshold as an inflating parabolic bubble formation.

Trading Strategy: Buy weakness to the 200-week simple moving average at $92.21 and reduce holdings on strength to the annual and quarterly pivots at $119.37 and $120.26.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for February were established based upon the January 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.