(EA) – Gaming Slow Down&nbsp – May 10,2021

Bearish – EA – $142.42

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Market Outlook:

After a shaky start to the week, equities recovered with the S&P 500 and DOW both ending the week on new all-time highs and the tech heavy Nasdaq-100 recovering after a pullback in Technology stocks. Employment data was the theme of the week as nonfarm payrolls rose by 266k. This was significantly lower than expectations, especially since March’s non-farm payrolls rose by 770k. However, equities reacted positively to this as it shows that the economy is not overheating which usually causes inflation worries and monetary policy tapering. Small caps still remain rangebound and are underperforming against the bigger names. However, IWM continues to squeeze the $230 resistance level which could lead to further upside. We continue to see rapid sector rotation with Energy, Financials and Materials moving into the leading category.  

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EA Trade Idea:

Our bearish trade idea today is EA Arts Inc (EA). EA is a video game developer and is part of the Communication Services sector (XLC). Compared to its peers, EA has fewer major game titles with concentrated risk on selected games (FIFA & Battlefield). Additional risks include increasing competition in mobile gaming and lower engagement in EA’s major titles. From a technical perspective, EA is forming a head and shoulders pattern for a potential move lower back to support at $129. EA has failed to break above resistance at $150 on multiple occasions providing further confluence for a move lower and its’ current levels provide an ideal risk/reward entry for a bearish trade.View EA Trade

Sector Outlook

After an important week of fundamentals, most sectors ended the week in the green while the sectors that didn’t, managed to limit losses to under 1%. Energy saw the biggest gain but has now approached the $54 resistance level which it will likely break above on strong momentum. 

XLB – Bullish

Our view on Materials is bullish due to strong fundamentals. A combination of infrastructure spending and continued economic recovery has seen XLB rally higher with strong momentum. However, a pullback to its 20 D MA will provide a more ideal long entry as price is currently at overbought levels. 

XLRE – Bullish

Despite finishing lower last week, XLRE’s recent pullback from a strong rally provides a good risk/reward bullish entry. XLRE’s 1M trend turned bullish last Thursday as we continue to see further upside for this sector.  

Tony Zhang