The American video game company headquartered in Redwood City, California, Electronic Arts Inc. (NASDAQ: EA) seem to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has broken out of a Symmetrical Triangle pattern. This is a continuation pattern and is characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the daily chart as purples lines. The breakout from a symmetrical triangle pattern usually signifies the start of a bullish move.
Daily Chart – EA
#2 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This usually implies a possible bullish bias for the stock.
[hana-code-insert name=’adsense-article’ /]#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the signal line (orange color).This is a possible bullish setup.
#4 Bullish Aroon: The Aroon indicator denotes bullishness, as the value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
#5 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines.
The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Downtrend Broken: The weekly chart shows that the stock has currently broken out of a short-term downtrend and is currently above the 200-week as well as 50-week SMA.
This is a possible bullish sign.
Weekly Chart – EA
#7 MACD above Signal Line: As you can see from the weekly chart, the MACD line (blue color) is currently above the signal line (orange color) here as well, indicating a bullish bias.
#8 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for EA is if it corrects to the breakout level of the symmetrical triangle pattern at around $95. For those with a higher risk appetite, you can purchase half the intended quantity of stocks at the current price of $102.72.
TP: Our target prices are $110 and $120 in the next 3-6 months.
SL: To limit risk, place a stop loss at $91.40 (for entry near $95) and $97.80 (for entry near $102.72). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 7% to 26% in the next 3-6 months.
- Entry at $95: For a risk of $3.60, the target rewards are $15.00 and $25.00. This is a nearly 1:4 and 1:7 risk-reward trade.
- Entry at $102.72: For a risk of $4.92, the target rewards are $7.28 and $17.28. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the symmetrical triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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