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Electronic Arts

01/07/15 03:36:35 PM
by Koos van der Merwe

When a share goes up and up and up, over the year, when is it time to sell?

Security:   EA
Position:   Sell

Electronic Arts, Inc. (EA), also known as EA Games, is an American developer, marketer, publisher and distributor of video games. In the world of today, with laptop computer prices falling; with cell phones and electronic tablets becoming more sophisticated, more and more teenagers and children are playing electronic games. One has simply to catch a bus, or a city underground train and count the number of teenagers playing games on their cell phones, rather than chatting with each other. Is there a limit? As long as a game companies continually introduces new games that capture attention, the answer is a definite "no", but no share can go up and up and up. There must be a limit? If so, where is it?

Figure 1. Monthly Chart With Elliott Wave Count. The stock price started correcting from a high of $71.60 in March 2005. The chart is suggesting a WAVE III could be topping out.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a monthly chart showing how the share price rose from 52 cents in March 1990, to a high of $71.16 by March 2005. The share did take part in the technology meltdown of 2000, falling from $31.13 in January 2000 to $12.06 by April 2000, but quickly recovered. However, the chart shows how the share price started correcting from a high of $71.16 in March 2005, well ahead of the mortgage backed security meltdown of October 2007.
With the share price completing its ABC correction by July 2012, it has risen steadily from a low of $11.02 to its current price at the time of writing of $48.53. The chart is suggesting that a WAVE III could be topping out because the share price has reached a 1.618 Fibonacci extension of WAVE I. The relative strength index (RSI) is also at overbought levels, having triggered a sell signal in October 2013 and then returning above the 70 horizontal line.

Figure 2. Daily Chart Of EA With JM Internal Band. The share price could have completed a WAVE V top. The RSI and MACD are suggesting sell signals also.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a daily chart with an Elliott wave count suggesting that the share price could have completed a WAVE V top. This is confirmed by the RSI which has fallen below the 70 horizontal level suggesting a sell signal, once again. The moving average convergence/divergence (MACD) indicator has also suggested a sell signal. Should the share price correct, it should fall in an ABC correction to the 4th wave of lesser degree, that is, somewhere between $38.73 and $32.20. Investors could keep an eye on the JM Internal Band indicator, looking for a sell signal should the price break below the lower band. The JM Internal Band is a 15-period simple moving average offset by 2% positive and 2% negative. A move above the upper band suggests a buy and below the lower band a sell.

I would not be a buyer of EA at its present level even though the share price has risen strongly over the year. I would prefer to wait for a correction, and then re-analyze the charts before making a decision.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
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