Take-Two Interactive Software, Inc. (TTWO), a gaming company, reported earnings after the market close on 5 August and beat analysts’ expectations, but was hammered on the 5th of August, after President Donald Trump tweeted that he would be talking with industry regulators about the issue of violent video games potentially being related to some of these recent deadly mass shootings, which were again making it into the news the week of the earnings. Then we get the news about the quarterly earnings and a statement about how the “Grand Theft Auto” gaming platform did ‘better than expected’. Take-Two opened for trading on 6 August, and traded as low as $112.27 and having rallied well off that low, traded as high as $128.50 in the first hour or so of trading on Tuesday (the 6th). This rally was helped with a ‘golden cross’ on the daily chart and a positive, but above the oversold reading, on the weekly chart.
Shares of Take-Two closed on Monday, Aug. 5 at $115.38, up 12.1% for the year-to-date and at 36.7% above the Feb. 27 low of $84.41, putting the stock in bull market territory. Shares made a new 2019 high on the reaction to earnings on Aug. 6. The bull market had developed off the end of a longer-term bear market, and the stock made an intraday all-time high of $139.90 on Oct. 1.
Moreover, the stock is overvalued with a P/E ratio of 27.85 and no dividend, according to Macrotrends. Because consumers spend add-ons to already-owned versions of games, Rockstar’s parent company has also thrived on what the industry has called ‘recurrent spending’. Recent accounting data from the NPD Group shows that the company’s Grand Theft Auto has ranked as one of the top 10 best-selling consumer products if you combine digital and physical sales.
The daily chart for Take-Two
Refinitiv XENITH
Take-Two’s daily chart in the graph displays that the stock has been above a ‘golden cross’ since 5 July, when the 50-day simple moving average crossed above the 200-day simple moving average, which signals that higher prices are ahead.
The close of $102.94 on 31 December was an input to my absolute-valuation analytics. My annual value level remains at $92.12. The close of $113.53 on 29 June was an input to my momo analytics, generating the semiannual and quarterly risky levels at $139.89 and $146.73, respectively. The close of $122.52 on 31 July produced the monthly value level for August at $122.26. The 50-day simple moving average is $114.68. The 200-day simple moving average is $105.21.
The weekly chart for Take-Two
Refinitiv XENITH
On the weekly chart, Take-Two’s story is positive, but overbought: intraday price action has the stock above its five-week modified moving average at $117.62 and well above its 200-week simple moving average, or “reversion to the mean” at 80.56. The weekly slow stochastic reading of 12 x 3 x 3 is projected to end the week at 90.15. That’s not only above the overbought water line of 80.00, but above 90.00 as an “inflating parabolic bubble” celebrating a growth spurt that is a red flag warning of a downside risk of 10% to 20% when the parabolic bubble pops.
Trading strategy: buy TTWO shares on weakness to the 200-day simple moving average at $105.22, and reduce holdings on strength to the semiannual and quarterly risky levels at $139.89 and $146.73, respectively.
To use my value levels and risky levels: Value levels and risky levels are calculated off the prior nine closes of weekly, monthly, quarterly, semiannual and annual data. The closing values data used for the original levels were on Dec. 31. The original annual level remains in play. The weekly level changed this week. The monthly level changed at the end of June. The quarterly level changed at the end of June.
There is a large probability that share price volatility will be fully embedded through nine years of volatility from closes to closes. That’s why I say: ‘A pivot is a mover.’ Pivots define value and risk, which are unique to the chosen time horizon of the trader. My practiced method of trading is to simply buy where the share price moves against me to a value level and to sell where the share price moves against me to a risky level: that is, to an unfavourable-entry extreme, strong-move extreme, upper DLP, lower DLP, down-day or up-day extreme. A pivot is a mover. Whenever there’s a completed time horizon, it’s time to check it, or test it. Based on my experience, it has a highly likely probability of stopping and reversing before its time horizon runs out.
How to do 12 x 3 x 3 weekly slow stochastic readings: I chose 12 x 3 x 3 weekly slow stochastic readings by testing many different ways of reading share-price momentum over a long period in order to find the combination that gave the fewest false signals. I was restructuring the trading system for my own firm following the stock-market crash of 1987, so I’ve been content with the results for more than 30 years.
This stochastic reading comes into play at the very end of the last 12-week span of highs, lows, and closes; one goes through the hassle of calculating the differences of the highs versus the lows versus the closes, then scales this raw number up against various levels, which are fast-timed and slow-timed (I went with slow).
The stochastic is viewed on a scale of 00.00 to 100.00, with readings of 80.00 and above considered overbought and readings of 20.00 and lower are oversold. As I recorded, stocks experience peak and then drop 10 per cent to 20 per cent and more shortly after a reading hits over 90.00, I denote this inflating parabolic bubble as ‘always the bubble pops’; and less than 10.00 as ‘too cheap to ignore’.
The text above has been adapted from the original text for the sake of human-sounding text while maintaining quotes and citations. This author has no personal stocks of the companies mentioned. There are no plans to initiate any positions within the next 72 hours.