Electronic Arts (EA) has not had a particularly successful 2024. But a retest of the April low, combined with improving momentum characteristics, has set the stage for a major recovery for a beaten-down chart. We’re showing EA on a closing basis, along with relative strength index and relative performance. We’re using the closing prices here to make it easier to detect a “bullish momentum divergence,” which is where prices are trending down, but price momentum is actually trending higher. This disagreement between price and momentum often occurs at market lows and can serve as an important indicator of a trend rotation. Note the lower price trend from April to May, as Electronic Arts pushed down to around $125-$126. During that same period, the RSI was oversold on the first test of this support, but much higher on the second test. This suggests less downside momentum on the second test and implies a potential exhaustion signal to the previous downtrend. What’s so fascinating about this particular combination of technical characteristics? This is the third time we’ve seen these indicators play out for EA since the end of 2022. In August-September 2023, this bullish divergence led to a 20% rally into year-end 2023. In February-March 2023, a similar pattern saw EA rally about 18% in the next four weeks. If we see a similar 18-20% move off the May low, that would imply an upside price target of around $148-150. This would also represent a retest of all-time highs for Electronic Arts, first reached in 2018 and then retested multiple times in recent years. Breakout ahead? The weekly chart shows that EA has been battling with this ultimate resistance level for almost six years. Off the COVID low in 2020, we’ve seen fairly consistent support around $110, which was last tested in March 2023. You can also see how the trend over the last 12 months truly shows this stock gaining momentum for another retest of all-time highs. What’s the risk to this bullish thesis for EA? From a tactical perspective, the recent push above moving average support suggests $130 as a potential short-term support on a pullback. Below that level, I’d consider the May low around $125 as key support, given the importance of the bullish momentum divergence and the strong initial rally off those levels. In terms of upside potential, if and when EA can finally push to new all-time highs above $150, then there is plenty of room for this stock to level up to much higher highs. -David Keller, CMT marketmisbehavior.com DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
