Activision Stock: These Signals Indicate Further Gains in ATVI Stock

Activision StockActivision Blizzard, Inc.: ATVI Stock Chart Is Picture Perfect 

I am bullish on Activision Blizzard, Inc. (NASDAQ:ATVI) stock, and I have been for quite some time. This company has made many great strides in the gaming arena, and its success has directly translated into gains for Activision Blizzard stock shareholders. It might seem shallow to most, but my bias on ATVI stock stems strictly from the information I am able to gather from the price chart.

I have used technical analysis as the basis of my investment strategies for over a decade. Technical analysis uses past market data as the foundation of discerning trends and forecasting future pricing. This methodology is not without its flaws, but it has served me well.

My analysis outlines Fibonacci retracement numbers and moving averages as a key determinant in basing my bullish view on Activision Blizzard stock.

The following ATVI stock chart illustrates the Fibonacci retracement numbers.

atvi

Chart courtesy of StockCharts.com

Fibonacci retracement numbers (highlighted above in green) are a very popular tool used by many technical traders.  This tool is used to identify countertrend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move.

A pullback (or drawdown) of this size and magnitude is normal within the context of a bull market. Many stocks that are sitting at all-time highs today have experienced such pullbacks. The emotions that follow such a drawdown are the catalyst that will help fuel the eventual resurgence of the price.

The 50%-62% retracement zone usually offers support, as traders will be eyeing this area. This zone is referred to by traders as “trading into the box”. When shares fall into this box, it signals to traders to cover heir short positions and to start building a long position.

In early 2016, a 39% drop in Activision Blizzard stock would have been enough to scare away many retail investors, but not the savvy ones. Savvy investors would have used the Fibonacci retracement numbers as a tool to acquire shares. ATVI stock conformed to these numbers perfectly, and the lucky few would have profited handsomely, as retail investors handed them a compelling entry point.

Activision Blizzard stock went on to new all-time highs, and anyone who sold during this weakness might be resenting the decision they made.

The following Activision Blizzard stock chart illustrates the 50-day and 200-day moving averages.

atvi2

Chart courtesy of StockCharts.com

Moving average crosses can be used to create a signal. There are only two types of signals that can be created by a moving average cross. A golden cross indicates that a bull market is on the horizon, and a death cross indicates that a bear market is on the horizon. The signals are confirmed when the faster-moving average (50-day moving average) moves above or below the slower-moving average (200-day moving average). These signals are exact opposites.

In March 2015, ATVI stock generated a golden cross and Activision Blizzard stock proceeded to run 70% before the shares peaked in December 2015.

In April 2016, ATVI stock generated a death cross, but that signal was quickly averted. Averted signals are powerful indicators, and many great runs have occurred on such an indicator. Failed indicators are actually more powerful than regular trading signals, and the reason is that any traders who used the initial signal to enter a speculative position need to quickly unwind and reverse their positions. This action serves to accelerate the prevailing trend.

The 50-day moving average is the line highlighted in blue in the chart above. This moving average has served as support during the majority of this bull run. The strength of the trend comes into question when ATVI stock is trading below the moving average. In October, Activision Blizzard stock successfully bounced off of this moving average, and the trend higher has continued.

A sustained break below the 50-day moving average would be reason to raise caution that a bigger pullback may be in the cards.

The Bottom Line on Activision Blizzard Stock

I am bullish on Activision Blizzard stock, and my view is based on the signals I was able to garner from the price chart. My bias on ATVI stock will remain bullish until the chart gives me reason to assume otherwise.