Video game company Take-Two Interactive Software, Inc. (TTWO) reports earnings on Monday, May 13, with the stock below a "death cross" but with a positive weekly chart. The stock closed Thursday, May 9, at $102.12, down 0.8% year to date and in bull market territory at 21% above its Feb. 27 low of $84.41. This bull market is a consolidation of a longer-term bear market, as the stock is 27% below its 2018 intraday high of $139.90 set on Oct. 1.

Analysts expect Take-Two to post earnings per share of 74 cents to 78 cents when it reports results after the closing bell on Monday. The stock is overvalued with a P/E ratio of 22.28, according to Macrotrends. Earnings are expected to benefit from the release of video games "WWE 2K – Rising Stars Pack" and "Tasty Town." To keep gamers happy, the company is spending more on research & development and marketing. Take-Two's partnership with the National Basketball Association (NBA) could be a drag on profits. 

The daily chart for Take-Two 

Daily technical chart showing the share price performance of Take-Two Interactive Software, Inc. (TTWO)
Refinitiv XENITH

The daily chart for Take-Two has been below a "death cross" since Dec. 14, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. This downside tested its annual value level at $92.12 on Feb. 6. The downside to the low of $84.41 on Feb. 27 was caused by a negative reaction to earnings released on Feb. 6.

The close of $102.94 on Dec. 31 was an important input to my proprietary analytics. An annual value level remains at $92.12, with a semiannual risky level at $117.97. The 50-day simple moving average is $84.34, with the 200-day simple moving average at $110.14. 

The weekly chart for Take-Two

Daily technical chart showing the share price performance of Take-Two Interactive Software, Inc. (TTWO)
Refinitiv XENITH

The weekly chart for Take-Two is positive, with the stock its five-week modified moving average of $97.08. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $75.08. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 54.98 this week, up from 42.52 on May 3.  

Trading strategy: Buy Take-Two shares on weakness to the annual value level at $92.12 and reduce holdings on strength to the semiannual risky level at $117.97.

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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March.

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 shares 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 their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting 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 refer to a reading below 10.00 as "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.