Video Game Stocks Set to Test Their February High

Global video game sales grew by 7.2% last year

Even at the best of times, video games are big business. Last year, global sales in the space pushed toward $150 billion, up 7.2% from 2018. In North America alone, total video game revenue topped $38 billion, according to research from game insights and analytics source Newzoo.

That momentum looks like it will be accelerating in the foreseeable future as strict social distancing guidelines and stay-at-home orders in many states provide people with newfound free time to try their hand at gaming. Furthermore, already popular esports titles may see a surge in demand as sports-starved fans seek a virtual substitute for the real thing while remaining locked out of stadiums to watch their favorite team play.

From a technical standpoint, each of the three video game stocks outlined below has outperformed the broader market and is now trading within earshot of its February peak. Below, we look at each name in more detail and explore several trading plays.

Activision Blizzard, Inc. (ATVI)

Activision Blizzard, Inc. (ATVI) develops and distributes content and services for video game consoles, personal computers, and mobile devices. The Santa Monica, California-based company continues to see robust demand for its impressive lineup of gaming hits, including "Overwatch," "Call of Duty," "Starcraft," and "World of Warcraft." In fact, the video game maker confirmed that the latest game in its "Call of Duty" franchise, "Call of Duty: Modern Warfare," brought in sales of over $1 billion as of December 2019. Activision Blizzard stock has a market capitalization of nearly $50 billion and sports a gain of 7.19% on the year as of April 15, 2020. Investors also receive a 0.65% dividend yield.

During last month's sell-off, the price tested its 200-day simple moving average (SMA) at the $54 level before promptly recovering to trade just 1.3% below its 52-week high as of yesterday's close. If a breakout occurs, look for a move back up to the two-year high at $83.46 set on Oct. 1, 2018. Those who trade the stock should protect capital with a stop placed beneath this month's low at $56.68.

Chart depicting the share price of Activision Blizzard, Inc. (ATVI)

Electronic Arts Inc. (EA)

With headquarters in Redwood City, California, Electronic Arts Inc. (EA) develops and markets content for gaming consoles, desktop computers, and smart devices. The owner of leading franchise hits such as "FIFA" and "Star Wars" recently announced that it plans to launch 14 game titles between April 2020 and March 2021. In its most recent quarter, year-over-year revenue growth of 24% in the firm's digital segment helped offset an 11% slide in its mobile games division. Electronic Arts stock has returned 4.20% year to date as of April 15, 2020.

The video game maker's share price has mostly traded within a 25-point range since early 2019, helping to establish well-defined areas of support and resistance. Over the past few weeks, the price has rallied 21% from the trading range's lower trendline, with a move above upper resistance at $115 now looking likely. Trades who buy the stock at these levels should set a profit target at $150, where the price may encounter headwinds from the July 2018 swing high.

Chart depicting the share price of Electronic Arts Inc. (EA)

Take-Two Interactive Software, Inc. (TTWO)

Take-Two Interactive Software, Inc. (TTWO) ranks among the world's leading video game publishers, offering products under its two wholly owned labels, Rockstar Games and 2K. Popular titles in the $13.93 billion firm's video game library include "Grand Theft Auto," "NBA 2K," and "Red Dead Redemption." Wells Fargo initiated coverage of Take-Two stock earlier this month, along with rival Activation Blizzard, placing an "overweight" rating on both names, citing long-term sector tailwinds and the strength of their respective franchises. As of April 15, 2020, Take-Two Interactive stock is trading flat on the year.

The share price has oscillated within an orderly descending channel over the past six months, with a flag – a continuation pattern – forming just under the pattern's top trendline. In Tuesday's session, the price staged a breakout above this closely watched resistance area and also closed above the 200-day SMA in a move that may attract further buying interest in the coming days. Swing traders who take a long position should book profits on a test of major horizontal line resistance at $134 while limiting downside with a stop placed underneath the pennant's low at $117.20.

Chart depicting the share price of Take-Two Interactive Software, Inc. (TTWO)
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