Technical Analysis and Market Entry: Electronic Arts (EA) Could Be Worth a Buy

  • The Electronic Arts (EA) price action is moving within a triangular structure and narrowing, subject to a breakout.
  • Buys are looking attractive, given the current low bar set on the company’s earnings estimates.

Electronic Arts’ shares have been generally on the decline since the high point of February 2019 , where they were up at $109. The advance here was the highest seen since October 2018 before losing much upside momentum. Back in October 2018, EA entered into a very steep bear market, falling a whopping 40% to a low in December at $74. The noted depressed level was the lowest Electronic Arts had been since December 2016.

A rebound was staged at the back end of December and into the start of January after the noted low kick-started a decent recovery. EA rallied as much as 40% up to the earlier-detailed high in February. The bulls ran into a supply area which tracks from the $104-$109 range. This level has been greeted with hard force by the market sellers.

Triangular Structure

Since the most recent cooling from February to May, the price has been trying to find some firmer footing. Through the year thus far, EA price action has formed a triangular structure – in particular, the lower highs which commenced from February respected the upper acting descending trend line. To the downside, support is seen tracking just below with an ascending trend line. The price over the past two sessions has again sought to this for safety.

Given the narrowing in price action, there is becoming less room for EA to move, suggesting a growing imminent breakout. At the time of writing, the resistance to the upside is seen around $98. Downside support is tracking at around $91; the firm break above or below outside of this structure will then likely see the next committed direction. Should the bears force a breach south, then a full reversal of the 2019 recovery could be seen in no time.

Earnings Report

EA is due to report its quarterly earnings after the closing bell on Tuesday 7th May. General Wall Street expectations are for the earnings per share to come in at $0.97, while revenue is estimated at $1.2 billion. Both indicate a significant year over year declines after a slew of earnings revisions to the downside. A strong pipeline for the company next year will additionally help provide some bullish momentum back into the stock.

Trade Recommendation

A buy from the current price territory looks attractive around $92-$93, given the support of the triangular structure formation. The lower acting trend line has recently proven its strength, with eyed on a potential breakout to the upside from the noted technical pattern. In terms of targets, firstly $105 is seen just ahead at the noted supply area; this would provide a RR of around 2.7. Secondly, $120 should be eyed; this is up at the October 2018 high, right before the big bear market kicked in, providing a RR of about 6. Stops should be placed at $88, just below the triangular formation.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.