Traders Corner   4 comments

Friday’s drop was good for the S&P 500’s daily technicals, but the weekly technicals are still overbought. How overbought is the S&P 500? Here is how big a drop we would see if it fell to key technical levels:

1. The 20 day moving average: -1.22%.
2. The Bottom of the Bollinger Bands: -3.10%.
3. The 50 day moving average: -3.49%.
4. The 200 day moving average: -8.59%.
5. 2012’s high (1474): -18.34%.

Just my opinion, but I think a nice 3.5% drop would do the S&P 500 good. It would return the weekly technicals to normal levels, and allow for another surge. A “Santa Claus rally” perhaps?

Keep an eye on the calendar, specifically December 16-17th, which is the Federal Reserve’s Open Market Committee meeting. Any rally would probably start on the 17th. On the other hand, if the Fed tapers, the end of December could belong to the Grinch…

The S&P 500 levels to watch today:

UPSIDE: 1808 (3 data points), 1813 (November 29th’s high and the all-time high), and 1817 (top of the Bollinger Bands).
DOWNSIDE: 1800-1803 (5 data points), 1797-1798 (2 data points), 1794-1795 (3 data points), 1790-1791 (2 data points), 1788 (November 18th’s low), 1783 (20 day moving average), 1775 (October’s high), 1749 (bottom of the Bollinger Bands), and 1742 (50 day moving average).


4 responses to “Traders Corner

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  1. I increased my position today in GA at 11.16 by 40%. They have received a buyout offer from chairman at 11.75. A special committee has been formed to review the bid. My opinion is that 11.75 will be the floor. They also go x dividend (23 cents) on December 10th. This is a bit of a risky play as the bid could be withdrawn. But my view is the company actually has a higher intrinsic value than 11.75, which is why I think bias will be for price to go up.

    • Marshall,
      “Intrinsic value” is a difficult thing to measure in a game company. Take a well-established game company like EA. Sure they have “franchise” games, like Madden, but the market could easily turn on them at any time. Or what if the NFL decides to start selling their own game? Or a competing company like Activision offers the NFL boatloads of money for an exclusive license? My point is that games are fragile things when using them to determine “intrinsic value”. People’s tastes are fickle, and a game that entertained them today might not tomorrow.

      By the way, I used Madden as an example because that kind of game is a tough nut as far as intrinsic value goes. Because of licensing considerations, and it’s popularity, EA has a true “franchise” there, so it can be legitimately added to an intrinsic value conversation without much to worry about. When you take a fiction-based game, assuming it isn’t based on some IP, it becomes even tougher to include it in “intrinsic value”. And what about piracy, which is a real problem in China?

      Mind you, I am not saying you are wrong. You may be right about GA. Certainly the financials look golden, and they have shown both top and bottom line growth. The analysts covering them certainly agree with you (PEG ratio of 0.68). Just remember that game companies are a very different animal to most of Wall Street’s companies.

  2. Thanks Ed. My understanding is that these are not games like madden! where copyright protection would be an issue. Instead they are internet based games whee many people get online and compete against each other and as teams. They are highly addictive (my 15 year old son plays one) and it would be difficult for a copycat to replicate as part of the value is all your friends and foes are tied into the Eco system. It is a growing market with excellent ability to add scale at very small marginal costs. The real key is to keep games fresh and challenging.

    • Marshall, I play these kinds of games all the time. Even good games that are well-run get boring after a year. The key to the gaming market, much like the tech market, is innovation. As game companies grow, they have a tendency to lose their innovative edge. One great idea, or even a couple of great game ideas, doesn’t mean they can keep going. Case in point: Zynga.

      That said, you might still be able to milk some more profits out of GA. It’s hard to tell when a game company will go south.

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