Electronic Arts Inc. (EA) kicked off earnings season for the Big 3 video game manufacturers last week, beating fiscal first quarter 2021 profit estimates while lowering full-year earnings per share (EPS) guidance. The warning was expected because EA's production schedule relies heavily on professional sports in a year that has brought major venues to their knees. The market shook off the bad news, lifting the stock within 10 points of 2018's all-time high at $151.26. 

Key Takeaways

  • Shares of video game manufacturers are trading near all-time highs.
  • Take-Two Interactive Software stock has carved the most bullish pattern in the group.
  • Next-generation game consoles should underpin the upside.

Take-Two Interactive Software, Inc. (TTWO) and Activision Blizzard, Inc. (ATVI) report earnings early this week, with both stocks trading close to all-time highs after strong advances, driven by higher-than-expected sales as a result of COVID-19 shutdowns. The introduction of next-generation game console releases this December should provide a second tailwind, adding to already impressive gains. 

All-time highs: Each phase of an uptrend has unique factors that need strategic shifts in risk management and profit objectives. This is especially true when a security rallies to a new high that hasn't been traded in its long-term history. This scenario can build wealth quickly but requires special technical rules to capitalize on the mechanics in play.

Chart showing the share price performance of Electronic Arts Inc. (EA)
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Electronic Arts stock completed a 60-point round trip into the 2008 high at $71.16 in 2015 and broke out one year later, entering a strong but brief uptrend that posted an all-time high at $151.26 in July 2018. It got cut in half into year end, finding support in the low $70s, ahead of a 2019 uptick that stalled just above $100 in February. A January 2020 rally failed to mount that barrier, giving way to a decline that held range support in the $80s.

Impressive industry sales attracted second quarter buying interest, lifting the stock back to the January peak in April. It broke out immediately, posting solid gains into July, when the uptick stalled above $141. Price action has now carved a rectangle pattern, setting the stage for breakout that should complete the round trip into the prior high. Even so, accumulation has lagged bullish price action, generating a headwind that could slow or stall a breakout to new highs.

Accumulation typically refers to a position size in an asset that increases over multiple transactions. Accumulation can also refer to the overall addition of positions to a portfolio. It can also refer to a general increase in buying activity in an asset. In this case, the asset is said to be "under accumulation" or "being accumulated."

Chart showing the share price performance of Take-Two Interactive Software, Inc. (TTWO)
TradingView.com

Take-Two Interactive Software shares topped out in the low $20s in 2004, establishing a tough barrier that wasn't mounted until 2015. The stock took off in a historic rally after clearing resistance, gaining more than 600% into the August 2018 high near $140. It sold off to a 16-month low in December and turned higher into 2019, stalling near the prior high in August. The first quarter selloff posted a higher low, ahead of strong second quarter price action.

The uptick reached the 2018 high in May, yielding a July breakout that posted an all-time high at $161.11 on Friday. The rally has attracted much greater buying interest than its rival, with accumulation readings lifting to all-time highs as well. This bodes well for additional gains after Monday's release, but a decline could reward sidelined investors with a low-risk buying opportunity at new support between $140 and $150.

Chart showing the share price performance of Activision Blizzard, Inc. (ATVI)
TradingView.com

Activision Blizzard stock topped out at $19.28 in 2008 after a multi-year uptrend and sold off to the single digits during the economic collapse. It returned to the prior high in 2014 and broke out, entering an uptrend that posted impressive gains in October 2018's all-time high at $84.68. The stock fell 45 points into December and turned higher in 2019, carving a shallow recovery that stalled in the $60s in February 2020.

The stock held up relatively well during the selloff into March, hitting a six-month low, and rallied above the first quarter high in April. It has continued to add points into August and is now trading just two points below the 2018 peak. Accumulation readings have led price action since the start of 2019, lifting to an all-time high while raising the odds that price will follow after Tuesday's post-market confessional.

The Bottom Line

Video game manufacturers are attracting healthy buying interest, with the biggest companies trading near all-time highs.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.