Activision Blizzard Inc. (ATVI) shares rallied over 1.0% in after-hours trading to $41.25 after reporting a strong second quarter. Profit came in at $0.39 a share, nine cents higher than the analysts’ estimates of $0.45. Revenue rose over 200% to $1.61 billion compared to a year ago, and was a strong beat of the eyed $1.50 billion estimate. CEO Kotick noted, "The lynchpin of our current success and our future growth is our talent. Our teams have the unique combination of passion, entrepreneurial spirit and inspired creativity. The success of Overwatch, our newest franchise, is a testament to this talent. I'm grateful to our over 10,000 employees, each of whom embodies these characteristics of our culture."
The key driver for the rally was the raised guidance. The standalone interactive entertainment company increased their 2016 EPS guidance from $1.78 to $1.83 and Revenue from $6.28 billion to $6.45 billion.
Price action on the 240-minute chart shows that bullish move is tentatively respecting trendline resistance from the record high of $43.05. Since Feb 12th, price has steadily rallied and managed to continue to respect the 50-day SMA. If we see further upside, price may find initial resistance from the $44.20 zone. Price could form a bearish butterfly pattern. Point D is targeted with both the 200.0% Fibonacci expansion level of the X to A move and the 141.4% Fibonacci expansion level of the B to C leg. If the pattern is invalidated and we continue to see bullishness, further upside may target the psychological $50 level. If bullish momentum stalls, major support will come from the 50-day SMA which currently trades around the $39.66 level.
The Trade: Sell ATVI at $44.20, with a stop loss at $45.20 and a take profit at $41.20. The Risk/Reward Ratio is 1:3