Electronic Arts Inc. (EA) was mentioned during Jim Cramer's Mad Money program Tuesday night. One of my finance students at Baruch College asked me about it after class last week so why not take a look at the charts today?
In the daily bar chart of EA, below, we can see some "interesting" developments. EA was cut in half from July to late December. A small recovery rally happens in January but last week prices gap to the downside. Volume is heavy but the December lows hold and prices do not start a leg lower.
In the past few days EA has soared to the upside. One day I would have given it up for dead and the next instance it jumps $25. You cannot make this up. As I look at the chart today I can see that prices are above the rising 50-day moving average line but below the declining 200-day average. The trading volume has been very heavy but the daily On-Balance-Volume (OBV) line has moved in a tight range. Hard to figure out.
The Moving Average Convergence Divergence (MACD) oscillator crossed to a take profits sell signal and quickly reversed to a buy signal.
This weekly bar chart of EA, below, is a little easier to understand. Prices are still below the declining 40-week moving average line but the weekly OBV line has turned up and so has the MACD oscillator.
In this Point and Figure chart of EA, below, we can see an upside price target of $162 for this stock. No gaps and no volume here.
Bottom-line strategy: Thursday night after class I asked my student why he bought EA on the gap lower. It looked terrible. Today I don't know what to think. More importantly I do not know what to risk -- below $95?, below $90? or below $80? I am waiting for more clarity.