Trade of the Day: Activision Blizzard Stock Is in Buy Territory

Stock Market

Shares of video gaming stocks have had a rough ride in recent weeks but are increasingly reaching oversold levels where bounces can occur. Shares of Activision Blizzard (NASDAQ:ATVI) have lost nearly 40% in value since early October and ATVI Stock is ripe for an oversold bounce.

To be clear, buying into falling-knife-type stocks and hoping for a bounce in my eyes is not a viable trading strategy, all else being equal. However, with the right type of setup, stocks dropping in near-vertical fashion can become tantalizing opportunities, for some of the sharpest bounces occur in bear markets.

ATVI Stock Charts


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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

Getting right to the charts and starting off with the multiyear weekly look, we see that the recent near-cataclysmic drop in ATVI stock has led it to slice through its 50- and 100-week moving averages (yellow and blue lines respectively) like a hot knife through butter. This type of downside momentum just about always leads to meaningful “oversold bounces,” but the question of course is from what price levels.

Note also that the red 200-week simple moving average looms not much below current levels while the weekly MACD momentum oscillator is deeply oversold. The one thing missing for me to buy ATVI stock right now is an actual bullish reversal, or seller exhaustion day.


Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily charts, we see that the multiweek sell-off now also has the the 50-day, 100-day and 200-day simple moving averages sloping lower. It has been a long time since this was last the case. The moving averages are all near each other currently and thus in my eye will ultimately offer a significant layer of technical resistance anywhere around the high $60s to mid $70s.

From a momentum perspective on the daily chart, the MACD momentum oscillator (black line at bottom of chart) is deeply oversold.

Less risk-averse traders may try to leg into small initial long positions here around the $51-$52 area but must also give this stock plenty of breathing room.

More risk-averse traders (myself included) will first want to look for a seller exhaustion day (stock closing well off it’s intraday lows) before entering long-side trades. A first upside target is $58.

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