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A "tie" worth monitoring

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Share of digital animation film and related products maker Pixar (NASDAQ:PIXR) $50.54 +1.08% continues a rather torrid run to new 52-week highs after recently triggering a spread-triple-top buy signal at $45 on August 14th, after reporting better than expected earnings and guiding analysts higher on future earnings.

Pixar Chart - $1 box

I mentioned the triple-top buy signal in PIXR on the break higher at $45 in the market monitor at OptionInvestor.com and that would have been a nice bullish entry point for traders. In recent days we've been talking about the "bear trap" and we see it here in PIXR. The "bear trap" is a pattern that is often found when the bullish % charts are all near "oversold" levels or just starting to reverse up into "bull alert" status. It is depicted by a triple-bottom sell signal where the violation of support is ONLY 1-box (see the $39 trade) and then quickly reversed higher that "traps the bears" that have been so accustomed to shorting the triple-bottoms, but when the bullish % charts were much higher and at more "overbought" levels.

Now, last night, a trader sent me an e-mail asking about a potential bullish trade in shares of Activision (NASDAQ:ATVI) $29.76 -1.09%, from a "bearish signal reversed" pattern on its point and figure chart. I'm not really familiar with this company, but do note that it is a publisher of interactive entertainment software products that cover the action-adventure, action-sports, racing, role-playing, simulation and strategy game categories and may be a "similar" play to the animated likeness of Pixar (PIXR).

Activision Chart - $1 box

There may be some type of "fundamental" bullish tie between ATVI and the bullishness we've seen in PIXR. If so, bulls may want to monitor ATVI for a break above the $30 level. The "bearish signal reversed" pattern may have bears short the stock second guessing there recent shorting on the rallies of $30 then $29 and a break at $31 could further unfold the "bearish signal reversed."

For now, I'd be cautious of the downward trend in ATVI as it looks like the rally to 52-week highs back in May (when bullish % were more overbought and reversing lower) found selling into strength and continued selling had the stock trading down to $27. Now we see a strong rally again on volume, but right back into the range of past distribution. Better to wait and look for a break of trend for the upside move here, but good stock to keep an eye on.

Jeff Bailey
Senior Market Technician
Option Investor

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