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Video Games

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The Wall Street Journal is reporting that videogame sales jumped 30% in the first half of this year, and could set record sales of $7 billion dollars. With 52% of the market share, Sony (NYSE:SNE) should be prospering. Not exactly, earnings fell 90% in the 1st quarter. Along with a slowing global economy, Sony cited weakness in electronics, videogames, and movie businesses. PlayStation sales were up, but the product line still posted an operating loss for the quarter. With PlayStation 2 sales fading, the company has lowered its full-year net profit forecast by 40%.

Sony Weekly Chart

Net income might be 40% lower in the next quarter, but Sony's stock price is 67% lower over the past 6 quarters. Looking at a weekly chart is the only way to get a good visual of the carnage. Today's additional $4.20 drop puts the stock in position to break weekly support at $52. If that level is lost, the stock could fall back into a previous trading range between $52 and $31 that Sony was mired in for 2 years. Sales of game software grew 4% to $1.55 billion, so mabye that's the place to look.

Activision Daily Chart

On Tuesday Activision (NASD:ATVI)reported a 31% increase in revenues, and net income of $29,000. That may not look like a lot, but it's better than a $5.2 million loss for the same quarter last year. Activision stock has also been rising, gaining 261% since November of 2000. On the way up the stock has dipped below the 50-day moving average on occasion, but never for more than a day or two. The latest dip almost put the stock below the 50-dma and the 38.2% retracement level anchored to the April low, but positive earnings were able to save the day. That makes $33.9 a good support level, but $41 looks to be equally good at offering resistance. This stock looks a lot like Microsoft, and like the software giant, this stock could continue to trade in an $8 range.

Jeffrey Canavan
Assistant Analyst
www.PremierInvestor.com

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