Games people play

05/27/20
  • Top gaming stocks in the black this year—with boost from lockdown
  • Many key names have pulled back in recent days
  • ATVI setting up to test recent breakout level?

Gaming stocks—the video kind, not the Las Vegas kind—have been hit-or-miss the past couple of years, with some of the major names performing fairly well in 2019 but still trading below their 2018 highs.

But it’s been a different story the past two months, as the lockdown has fueled a surge in home entertainment. The following charts shows the year-to-date returns of four high-profile game producers—Activision Blizzard (ATVI), Nintendo (NTDOY), Electronic Arts (EA), and Take-Two Interactive Software (TTWO):

Chart 1: Activision Blizzard (ATVI), Nintendo (NTDOY), Electronic Arts (EA), and Take-Two Interactive Software (TTWO), 12/31/19–5/26/20. Video game stocks price chart. Stay-at-home rallies.

Source: Power E*TRADE


Not only are they all positive for the year, they’ve all jumped at least 30% off their March lows—even after all of them pulled back yesterday.

One possible explanation for yesterday’s gamer weakness during a big up day for the broad market is that, amid optimism over potential vaccines and the reopening of the economy, traders see less upside for some of the products and services that have been in such strong demand during the lockdown.

While that’s certainly plausible, there are also likely many bulls who expect the return to pre-COVID entertainment options (e.g., going out to eat, going to movies, attending sporting events) to be a relatively lengthy process, which raises the possibility that more gaming could be the “new normal” for quite some time.

The following table shows all these stocks have at least one of the top-selling games this year, with ATVI holding down the top spot and TTWO and NTDOY with two entries each:1

Chart 2: Best-selling video games, YTD through April 2020.

Source: The NPD Group (NPD.com). *Digital Not Included.


ATVI may be especially interesting to some gaming bulls because yesterday’s sell-off resulted in a downside breakout of the nearly three-week trading range the stock formed after crushing its earnings numbers on May 5.2

Traders anticipating another leg to the uptrend may look for ATVI to tread some familiar technical ground first: Pull back to at least test the May breakout level, with the possibility of a decline to the late-April low—call it a zone roughly between $68.50 at the top and $62.50 at the bottom:

Source: Power E*TRADE

Chart 3: Activision Blizzard (ATVI), 3/12/20–5/26/20. Activision Blizzard (ATVI) price chart. Downside breakout.


Of course, if tech retreats as a whole—it’s been white hot since the market began rebounding in March—gaming stocks are unlikely to be able to fight the retreating tide. (Tech was, in fact, the S&P 500’s second-weakest sector yesterday, and the Nasdaq 100 trailed the market last week.)

But for traders who think the gaming-stock renaissance hasn’t run its course—and the fact that hedge funds expanded their long ATVI positions significantly so far this year may make them feel they’re in good company3—pullbacks like these may appear to be opportunities to catch a train that looked like it had already left the station.

Market Mover Update: Airlines kicked off the week in take-off mode, while strong rallies in Boeing (BA) and General Dynamics (GD) highlighted strength in aerospace names. JPMorgan Chase (JPM) jumped more than 8% intraday as financial stocks fueled the S&P 500’s rally (see “Rotation watch”).

Following through on one of last week’s themes, the small-cap Russell 2000 (RUT) paced the major US indexes to the upside yesterday, while the Nasdaq 100 (NDX) tech index trailed the pack.

Today’s numbers: Richmond Fed Manufacturing Index (10 a.m.), Beige Book (2 p.m.).

Today’s earnings include: Autodesk (ADSK), Box (BOX), Ralph Lauren (RL), HP (HPQ), Workday (WDAY), NetApp (NTAP), Toll Brothers (TOL).

 

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1 NPD.com. Top 10 Selling Video Games (Retail and Digital), YTD Ending April 2020. 5/22/20.

2 StreetInsider.com. Activision Blizzard (ATVI) Tops Q1 EPS by 20c, Offers FY20 Outlook. 5/5/20.

3 InsiderMonkey. Hedge Funds Have Never Been This Bullish On Activision Blizzard (ATVI). 5/23/20.

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