ATVI Stock Is Soaring the Skies
Activision Blizzard, Inc. (NASDAQ:ATVI) stock has finally shown up to the party, and in spectacular fashion, I might add. I had outlined in my previous article about this company, “Activision Blizzard, Inc.: If ATVI Stock Does THIS, the Sky’s the Limit,” that Activision stock was lagging the general market indices.
I also explained in my previous publication about this stock that, even though relative weakness is a bearish indication, Activision shares were testing an important level of support and that if a certain criterion was met, this could spell the beginning of an impressive run to the upside.
I was not disappointed with the outcome that followed, as ATVI shares surged to create a new high after the company reported impressive earnings results.
Now I want to share the good news that I believe there are further gains to be seen in ATVI stock.
My beliefs are centered around the specific style I employ to analyze potential investments. For those not familiar with my work, I use technical analysis to generate my investment views. Technical analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. Therefore, the price chart is the tool that I focus on.
The following price chart of Activision stock illustrates the long-term trend that has contained the price.
Chart courtesy of StockCharts.com
The long-term trend that has supported the price and has contained it at the same time has been an ascending channel. This technical pattern contains two parallel upward-sloping trend lines, in which the upper trend line represents resistance and the lower trend line represents support. This bullish trend is characterized by the price that oscillates within it. As long as the price remains within the confines of this pattern, it is assumed that higher prices will prevail.
In my last publication on Activision stock, the price was testing support outlined by this ascending channel, and the moving average convergence/divergence (MACD) indicator in the lower panel was converging. The surge in price that followed the earnings report caused the indicator in the lower panel of the stock chart to cross in a bullish manner.
MACD is a trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. The bullish cross that was generated indicates that bullish momentum is now propelling the ATVI price and that, as a result, the path of least resistance is geared toward higher prices.
I chose to focus on this indicator because it has had great success in the past at confirming the predominant trend within the ascending channel and, as long as the MACD cross remains in bullish alignment, I can only assume that higher prices will prevail.
The price action that is illustrated on the Activision stock chart below supports the bullish view that higher prices are likely.
Chart courtesy of StockCharts.com
When I published my previous report on this company, I outlined that, in order to confirm that a new trend toward higher prices has begun, ATVI shares would need to break above the 200-day simple moving average (SMA). The 200-day simple moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish.
The price broke above this moving average in the days preceding the earnings announcement, and gave an early warning of the bullish things to come.
The price action that followed the test of support was orderly and constructive, which served to suggest that higher prices were set to follow. Orderly and constructive price action consists of impulse waves that advance a price, and consolidation waves that serve to alleviate overbought conditions and set up the next advancing impulse wave.
This wave structure began in early December 2016, and it implied that the price was going to overtake the 200-day SMA.
The reaction that followed the positive earnings report is illustrated on the chart above as a large gap in the price. This gap is highlighted as a “breakaway gap” on the chart because these type of gaps rarely get filled, and serve to suggest that a new trend has begun.
The price action following the “breakaway gap” continues to display orderly and constructive price action. This price action, as well as the “breakout” that is highlighted in the chart above, serves to suggest that a new impulse wave is now in development and that higher prices will follow.
If I were to project a potential target for ATVI stock, I would have to point back to the ascending channel and suggest that the upward-sloping level of resistance is a logical price objective. It is difficult to pinpoint an exact level because, as time progresses, this level continues to move higher due to its upward slope, but I can safely say that resistance is currently much higher than current prices.
Bottom Line on Activision stock
I am bullish on the prospects of Activision stock, and this bullish inclination is based on both the price action and the indicators that have been generated using its stock chart. I will remain bullish as long as these indicators on the ATVI stock chart continue to support this view.