Electronic Arts (EA) has not had a particularly successful 2024. However, a retest of the April lows coupled with improved momentum characteristics has set the stage for a significant recovery on the struggling chart. We display EA on a closing basis, along with the Relative Strength Index and Relative Performance. We use closing prices here because it makes it easier to detect “bullish momentum divergences” where price is trending down but price momentum is actually trending up. This discrepancy between price and momentum often occurs at market lows and serves as a key indicator of trend rotation. Note the downward price trend from April through May as Electronic Arts fell from approximately $125 to $126. During the same period, the RSI was oversold on the first test of this support but moved much higher on the second test. This suggests less downside momentum on the second test, implying a potential exhaustion signal for the previous downtrend. What is so appealing about this particular combination of technical characteristics? This is the third time we have seen these indicators play out for EA since the end of 2022. In August-September 2023, this bullish divergence led to a 20% rally by the end of 2023. A similar rally was seen in February-March 2023. In this pattern, EA rose about 18% over the next four weeks. If we see a similar 18-20% rally from the May low, that means the upside target is near $148-150. This would be a retest of the all-time high for Electronic Arts, which was first achieved in 2018 and has since been retested multiple times in the past few years. Breakout Ahead? The weekly chart shows that EA has been fighting this ultimate resistance level for almost six years. Since the 2020 COVID lows, we have seen pretty consistent support near $110, which was last tested in March 2023. We can also see that the trend over the past 12 months actually shows that this stock is gaining momentum to retest its all-time high again. High note. What are the risks to this bullish thesis for EA? From a tactical perspective, the recent move above moving average support suggests $130 as a potential short-term support on the pullback. Below that level, I believe the May low near $125 will be a key support given the importance of the bullish momentum divergence and the initial strong bounce from that level. In terms of upside potential, if EA can eventually break out to an all-time high above $150, there is plenty of room for this stock to rise to even higher highs. -David Keller, CMT Marketmisbehavior.com Disclosure: The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase securities or other financial assets. The content is general in nature and does not reflect the unique personal circumstances of any individual. The above content may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for full disclaimer.
