EA Stock: Still Bullish
Electronic Arts Inc. (NASDAQ:EA) stock has been under some pressure after it hit a high of $96.07 on October 4, 2016. After attaining this all-time-high, EA stock has begun trending lower and, in the process of trending lower, the selling pressure has caused a few indicators on the Electronic Arts stock chart to cloud over some of the bullish developments on the price chart.
These clouds come on a bright and sunny day because the overall long-term bullish trend still remains intact, but there is always the possibility that these clouds could morph into something more sinister in which storm clouds develop and quickly darken the picture. As a result, it is always wise to pay attention to signals when they begin to reverse.
My investment biases and views are generated from the information I am able to pull off of the price chart. This information comes in the form of price signals and price patterns. These signals are based on past price data and can be used to forecast the future direction of a price. This type of investment analysis is known as technical analysis, and I have been using it effectively for over a decade.
The following Electronic Arts stock chart illustrates the recent developments that have occurred over the last 10 months.
Chart courtesy of StockCharts.com
In June, Electronic Arts stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon. I find it wise to trade in the direction of this signal because the bullish tailwind that is created when it is engaged increases the probability that a bullish pattern will succeed.
In order for a golden cross to develop, EA stock had to trade above two key moving averages. The longer-term moving average, the 200-day 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. Since the middle of May, EA stock began trading above this moving average and has continued to remain above it.
The shorter-term moving average, the 50-day moving average, also measures the health of a stock, and this moving average provided price support after the golden cross was generated. Any sell-off that occurred prior to November was halted by this moving average as investors were eager to step in and support the price of Electronic Arts stock at this level.
In late October, EA stock broke below this moving average and the price has tried to trade above it, but has failed to do so on two previous occasions. The inability to trade above this moving average is one of the clouds that has developed on an otherwise bullish picture.
Even though clouds have developed, the following Electronic Arts stock chart illustrates that the long-term trend is still bullishly sunny.
Chart courtesy of StockCharts.com
The uptrend that has developed is as clear as a sunny day, and is defined by the trend line (highlighted in blue). This line is created by connecting the troughs on the price chart and has been supporting the price of EA stock for four years. An uptrend is defined by higher highs, confirmed by higher lows. It can easily be identified as the price moves from the lower left to the upper right, and is a clear example of bullish price action.
Electronic Arts stock will continue to trade with a bullish bias for as long as the price remains above this trend line.
The 200-day moving average and the uptrend line are currently coinciding at one price, and this suggests that price support is currently strong at this level.
The lower panel labeled “MACD” illustrates another cloud that has developed. Moving average convergence/divergence (MACD) is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. A bearish cross was generated in November 2016, and this signal indicated that bearish momentum is overwhelming the bullish momentum and, as a result, the bears are in control of EA stock.
The bearish MACD signal coincided with the price falling below the 50-day moving average. These two clouds could be suggesting that something more sinister could evolve in EA stock, but as long as Electronic Arts stock is trading above both the uptrend line and the 200-day moving average, the trend remains bullish and sunny.
Bottom Line on Electronic Arts stock
Although some clouds have developed on the Electronic Arts stock chart, the overall long-term trend in EA stock stock remains sunny and bullish. These clouds could develop into storm clouds, so it’s always good to keep one eye on the remaining level of support.