As regions around the world deal with the implications of a second wave of COVID-19, many individuals are turning their leisure time toward video games and other sorts of electronic media. With the release of new consoles this holiday season, the renewed interest in gaming could act as enough of a catalyst to send prices of stocks across the industry sharply higher. In this article, we look at charts from across the niche video game industry and try to determine several ways that traders will position themselves over the weeks ahead.
- The video game industry stands to benefit from massive changes in how people spend their leisure time.
- Underlying demand for forms of electronic media and entertainment make the video game industry one of the key segments to watch over the weeks and months ahead.
- Nearby support and resistance levels on stock charts in the video game industry are acting as guides for active traders on the placement of buy and stop orders.
Wedbush ETFMG Video Game Tech ETF (GAMR)
Those who are not in tune with the latest developments in the video game industry may want to look at the holdings of the Wedbush ETFMG Video Game Tech ETF (GAMR). Fundamentally, this fund was the first to target the video game tech industry, and it is made up of 89 holdings from across the globe.
Looking at the chart below, you can see that the fund has been trading within a sharp uptrend since recovering from the March lows. Trend traders have been closely following the price over the past several months as it has remained within a defined range. The recent close above the upper trendline is a clear signal that the next leg of the uptrend has started. What most followers of technical analysis will want to note is how there are no previous levels of resistance standing in the way of a strong move higher.
Video game companies tend to fall into either the consumer discretionary or communications services sectors. The consumer discretionary and communications services sectors have each outperformed the broader market in the past year. As of Nov. 16, the Consumer Discretionary Select Sector SPDR ETF (XLY) posted a one-year trailing total return of 28.1%, and the Communication Services Select Sector SPDR ETF (XLC) had a total return of 24.1%. This compared with a total return of 18.4% for the S&P 500.
Bilibili Inc. (BILI)
Active traders often will look to the top holdings of niche funds such as GAMR for ideas. In the case of Bilibili Inc. (BILI), which makes up 2.47% of the ETF's total assets, you can see that the price has recently move beyond the defined triangle pattern on heavy volume.
The breakout is a clear indication that the bulls are in control of the momentum. Based on the height of the pattern, traders will most likely set short-term target prices near $70. Depending on risk tolerance and outlook, traders will likely protect against a selloff by placing stop-loss orders below one of the dotted trendlines or major moving averages.
Glu Mobile Inc. (GLUU)
Another gaming company that could come to the attention of active traders over the weeks ahead is Glu Mobile Inc. (GLUU). Looking at the chart below, you can see that the price has recently started to diverge from in the upward direction from its long-term moving average.
The uptick in momentum will likely be used as confirmation that the bulls are in control of the trend. Based on the shifting direction of the long-term moving, averages some traders may even argue that the stock is in the early stages of a long-term uptrend.
The Bottom Line
Due to the ways that many people are choosing to spend leisure time during the global pandemic, video game stocks will likely see strong underlying demand for many months ahead. The timing of new titles and new consoles will also likely act as one of the primary drivers of interest in the industry. Based on the patterns discussed above, despite strong uptrends already established in 2020, upward momentum will likely continue for the remainder of the year and for much of 2021.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.