Another Congestion-Area Breakout
Activision shot out of a three-week consolidation
zone Friday after the video-game maker beat profit views despite a decline in
revenue.
Shares in Activision
(
ATVI |
Quote |
Chart |
News |
PowerRating)
gained 1 1/2 to 20 on volume of 3.3 million shares, eight times the stock’s
usual trade. The move came after the Santa Monica, Calif.-based holding company
for Activision Publishing reported earnings of 70 cents a share for the fiscal
third quarter, down from 75 cents a year ago but well above consensus estimates
of 60 cents, according to First Call/Thomson Financial. Revenue declined 2% to
$264.5 million. The company also upped its
guidance for full-year earnings by 11 cents and its revenue expectation by $48
million, or 9%.
Intermediate-mo players need to realize there’s more to life than
cup-with-handles. In the case of Activision, you’ve got a stock that ran up in a
nice, very linear (i.e., stable) uptrend, then put in a nice, tight, sideways
zone characterized by price and volume contractions. That made the explosive
rally all the more unmistakable.
Prior to the breakout, Activision had strong intermediate-term
strength: 12-month RS of 88, six-month RS of 97 on the TradingMarkets
StockScanner. Meanwhile, the
stock’s RS line confirmed the breakout by moving into new high ground. And look
at the fine long-term up trend in the following chart.Â
Earlier this week, I noted a similar
range breakout in American Eagle Outfitters
(
AEOS |
Quote |
Chart |
News |
PowerRating). It’s a set-up worth
keeping an eye peeled for: uptrend, tight consolidation, range expansion. For
more thoughts along these lines, see my Jan.
29 commentary, and be sure to read the quotation of Market Wizard Paul
Tudor Jones near the end of the piece.
The top field of all stock charts in this
commentary uses a logarithmic price scale and displays a 50-day price average in
red. Some charts also show a 200-day price average in black. In the second field, a
blue relative strength line represents the displayed security’s price
performance relative to the S&P 500. The third field displays vertical daily
volume bars in black with a 50-day moving average in blue for volume.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.