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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Monday, August 03, 2020

1. Stocks rally and online game stocks rally more

2. Demographics and COVID-19 improve industry prospects

3. What works: buying a dip in an upward trend

Market Moves

Stock indexes posted impressive gains after an already impressive run last week, but one industry group looked even better. Game stocks have not only done well of late, but are expected to continue their campaign higher in months to come. While the Nasdaq 100 index (NDX) closed 1.37% higher, the S&P 500 index (SPX) also closed 0.72% higher, as investors continued to show optimism after big tech earnings reports came in better than expected last week.

However, as the chart below suggests, the online gaming industry is doing even better than the high-flying, high-tech Nasdaq 100 index. This chart compares Invesco's ETF (QQQ) with ETF Managers Group's industry index ETF (GAMR). Since the market lows in March, this ETF is up nearly 70% and it didn't give back the gains it made in today's session like the broader indexes did. These signals hint that this industry may have more room to run.

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Demographics and COVID-19 Improve Industry Prospects

It should come as a surprise to nobody that more people are playing more online games than ever before. Games are becoming more and more accessible online, and with pandemic policies in place, employees have shorter commutes and more flexible schedules. This allows more time for the new normal in social activity. Gaming online is the easiest and safest way to interact with others in an entertaining environment nowadays.

The chart below compares four stocks in the industry: Activision Blizzard (ATVI), Electronic Arts (EA), Take Two Interactive (TTWO) and Nintendo (NTDOY). EA shares jumped as the company reported better-than-expected earnings last week, setting the stage for Activision's report tomorrow.

Read more:

Disney Earnings: What to Look For

Wynn Resorts (WYNN) Could Test March Low

Video Game Stocks Could Post Impressive Gains Into 2021

What Works: Buying a Dip in an Upward Trend

Traders that look to buy shares in a strongly upward trending stock may have difficulty finding a place to buy that doesn't feel overpriced. The chart below might have suggestions for how to help with that. When Activision Blizzard reports earnings tomorrow there is likely to be some fluctuation in the price. Using a combination of indicators a chart watcher can make a plan to anticipate buying shares at an optimized price.

This chart combines four indicator tools: (1) a Linear Regression channel, (2) a red line marking the most recent resistance (now support) level, (3) A sine wave cycle pattern that matches key swing-high and swing-low days over the past few months, and (4) a Fibonacci speed-resistance tool. These indications combine to suggest a possibility that ATVI shares might fall back in the range between $81 and $83 before too long. That would be a smart place to attempt an entry, assuming this stock were to continue its trends.

The Bottom Line

Stocks rose with solid gains today, but gave back just a bit in the session. One industry group, online game stocks, seems to be surpassing the broader market. Within that group, one company, Activision Blizzard, reports its earnings tomorrow. The stock has been strongly trending so far in 2020.