Electronic Arts (EA) has been in a choppy-to-higher trading range for the past three months, but a slowing momentum picture ahead of earnings points to a possible pullback within a longer-term advance.
In this daily chart of EA, above, we can see prices testing the now-flat, 50-day Simple Moving Average line. Prices are well above the rising, 200-day average. The daily On-Balance-Volume (OBV) line jumped sharply higher, with the big upside gap in prices in May. After that sharp adjustment, the OBV line has been moving sideways -- and did not make a new high along with prices this month. Volume and the OBV line should move up with prices to confirm the trend has staying power.
In the lower panel is the 12-day momentum study, which shows a bearish divergence in May and July, as prices make higher highs, but the momentum study made lower highs. This divergence tells us that the rate of acceleration slowed and this can sometimes foreshadow a reversal to the downside.
In this three-year weekly chart of EA, above, we can see that prices are above the rising, 40-week moving average line. Other than a surge for one week in May, the volume of trading has been declining all year. Rising volume with up-trending prices would be a more constructive technical picture. The weekly OBV line has been flat for the past 12 months and has been weakening in July.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is above the zero line, but the moving averages that make up the indicator are narrowing towards a possible sell signal. A disappointing earnings report could prompt a pullback towards the 200-day moving average line. Longs should consider locking in some of their profits.