Activision Blizzard: Buy Upward Surge (NASDAQ:ATVI)

Activision Blizzard, Inc. (NASDAQ: ATVI) is a premier developer and publisher of interactive entertainment offerings, famous for its top-tier franchises. Lately, there has been a notable move in Activision Blizzard’s stock price, marked by increased volatility. The stock is up 166.15% from its 2019 lows. Analyzing Its price trajectory, formation of a rising widening wedge, and rounding bottom suggest a strong bullish outlook in both the short and long term, pointing to continued positive momentum. This article takes a technical look at Activision Blizzard’s stock trajectory, with the goal of discerning its future direction and highlighting potential avenues for long-term investors.

Berkshire Hathaway’s journey with Activision Blizzard

When Berkshire Hathaway (BRK.A) (BRK.B) announced its investment in Activision Blizzard, the investment world watched with bated breath, the surprise further intensified by Microsoft’s subsequent disclosure of its intention to acquire the gaming giant for a colossal $68.7 billion cash deal. As the market was rife with speculation and rumours, Warren Buffett, Berkshire’s legendary CEO, quickly put a stop to the narratives and clarified that they knew nothing about Microsoft’s impending plans. As the dust settled on these announcements, attention turned to the daily ebb and flow of the stock market.

Looking back, Berkshire’s decision to invest in Activision Blizzard seems remarkably farsighted, especially given the subsequent appreciation of its position in the company. However, many were caught off guard when Buffett, often taking a long-term investment stance, chose to liquidate a significant portion of this winning stake ahead of schedule. The latest numbers say: Berkshire’s stake in Activision Blizzard plummeted from 6.7% to a modest 1.9%. This substantive change was timed around a pivotal court decision that rejected the Federal Trade Commission’s offer to stop Microsoft’s acquisition efforts. Following this sell-off, Activision Blizzard’s share price increased by 10%, reflecting the market’s favorable response to the court verdict.

Buffett’s decision to reduce the stake is in stark contrast to his well-known philosophy of holding stocks for the long term. Notably, the original choice to invest in Activision Blizzard was not originally Buffett’s, but probably the work of either Todd Combs or Ted Weschler, two influential figures at Berkshire. Recognizing an opportunity, Buffett bolstered the position to capitalize on merger arbitrage potential. This tactic seeks to exploit price discrepancies during procurement processes, especially given the uncertainties inherent in consummating deals. With Microsoft’s bid to acquire Activision Blizzard facing regulatory hurdles, the stage was set for Buffett to seize this arbitrage opportunity.

Despite ongoing uncertainties in the marketplace, the company’s forward-thinking approach to tapping into the burgeoning field of esports, coupled with its strategic expansions into mobile gaming, positions it well in the rapidly evolving gaming industry. In addition, recent interest from major investors and potential acquisition interest reflects increased market confidence in its future prospects. Taking these factors into account, Activision Blizzard makes a compelling bull case for investors, making it a prime buy in today’s market. landscape. He The chart below shows Activision Blizzard’s net income, which stands at $587 million and is trending upwards, indicating the company’s strong earnings track record.

Adding to the bullish sentiment around Activision Blizzard, Activision Blizzard’s recent listing in David Einhorn’s Greenlight Capital portfolio, as disclosed in his latest 13F filing, underscores a positive stance towards the gaming company. The company’s addition and increased stakes in other companies signify a potential tactical twist that could further amplify Activision Blizzard’s appeal to investors.

Revealing the bullish price increase

The following quarterly chart presents a compelling narrative of Activision Blizzard’s enduring bull trajectory spanning an extended duration. Starting from its low point of $9.57 in 2012, the stock has shown remarkable momentum, rising to an all-time high of $102.31. However, this pronounced bullish momentum has been accompanied by increased volatility, leading to a rising widening wedge pattern as a consequence. Of note, the most substantial quarterly drop in the stock occurred in 2018, aligning with the support line of this pattern. This downturn can be attributed to many factors: concerns about market saturation within specific game genres, uncertainties surrounding Activision Blizzard’s ability to sustain growth amid intense competition, and evolving gaming preferences. The decision to introduce “Diablo Immortal” for mobile rather than a new PC/console iteration met with disapproval from the loyal player base, further contributing to industry-specific turmoil. Broader stock market instability towards the end of that year exacerbated this situation, putting additional downward pressure on several stocks, including Activision Blizzard.

However, despite these setbacks, the market demonstrated a resilient rebound, propelling the stock to its all-time high. This increased volatility, while increasing overall market risk, also amplifies the potential for future price growth. A significant market crash in 2021 set the stage for another notable rise in prices. Currently, the stock is going through a broad consolidation phase, which suggests a positive trajectory ahead. This sentiment is bolstered by the remarkably favorable performance of the third quarter of 2023, as indicated by the quarterly candle, which points towards a potential bullish rally.

In addition to this view, the following monthly chart provides a detailed explanation of the Fibonacci retracement, which runs from the low of the Great Recession at $7.14 to the high of the stock. The decline from this peak found strong support at the 50% retracement level, marked at $55.47. This observation is reinforced by a blue trend line, which emphasizes sustained bullish momentum and indicates a possible continuation of the bullish price trend. Significant events from the June monthly candle further support this analysis, signifying a fundamental turning point, along with remarkably positive price movements in July and August. Taken together, these factors suggest a market primed for a move higher.

Key action for investors

The above analysis shows that the short- and long-term outlook for the stock is bullish. Delving into the short-term outlook, the weekly chart highlights solid bullish momentum characterized by multiple rounding bottoms. The rapid recovery in 2019 took shape as a rounded bottom, and interestingly, a similar rounded-bottom pattern is evident in 2023, anchored at the $70.18 low, as illustrated on the chart below. The crucial neckline for this pattern came in at $86, which has since been broken, suggesting a possible upward trajectory. Any price pullback to the $86 mark can be considered an excellent buying opportunity for long-term investors. Investors may consider entering at current price levels and consider accumulating more positions if price corrections develop.

Market risk

Microsoft’s plans to acquire Activision Blizzard face numerous regulatory challenges. Any setbacks could weigh on the stock’s performance, raising questions about integration, value capture and synergistic opportunities. Major investments by entities such as Berkshire Hathaway have affected stock fluctuations. Relying too much on the decisions of high-profile investors could skew market perceptions, causing unstable price movements.

The gaming industry is marked by rapid transformations, driven by changing player demands and technological advances. This dynamism and concern about market saturation for specific categories of games may challenge the growth of Activision Blizzard. While considered a lucrative merger arbitrage prospect, Activision Blizzard is not without risk due to uncertainties surrounding the completion of the deal. Any interruption or delay in the merger could cause short-lived price movements. From a technical perspective, the highlighted rising widening wedge pattern suggests the possibility of further price volatility. While this pattern could lead to notable price rallies, there is also a risk of sharp declines, especially if prices break below the critical support point of $55.47.

Bottom line

The ongoing narrative surrounding Berkshire Hathaway’s investment in Activision Blizzard and subsequent acquisition plans by Microsoft sheds a revealing light on the complexities of the investment field. Warren Buffett’s unconventional decision to cut holdings earlier than expected, coupled with legal verdicts and market responses, has created a dynamic environment for investors. While Berkshire shares provide a valuable strategic lesson, individual investors should use extensive research and meticulous analysis. Notable investments, exemplified by Greenlight Capital and Third Point, demonstrate optimistic sentiment toward Activision Blizzard, an attitude further accentuated by the stock’s favorable trajectory over time.

Looking through a technical lens, the share price is showing strong signs of a bullish pattern, evident in the rising widening wedge and rounded bottom formations. A bullish gap beyond the $86 mark means a further bullish move, making the current juncture opportune for investors to snap up the stock. In case of possible market corrections, investors can progressively increase their positions, increasing their investment in Activision Blizzard.