Shares of video game publisher Electronic Arts have seen tumultuous times as of late, losing ground for the 11th straight session on Monday. This means the stock now has fully retraced its impressive breakout from late September. It may seem like a long time ago, but that breakout actually produced an eight-day winning streak. The 180-degree turn over the past few weeks has made EA net-flat over the past three months. Thus, the real test now is about to happen. As is clear on the chart, there has been no indication that EA wants to reverse higher yet. The silver lining is that the stock now has dropped back down to a confluence of support, which has helped its short-term risk/return ratio. Pictured in the above chart are the following: The stock’s former breakout zone near in blue (147) The uptrend line drawn from the May low in green (148) The key Fibonacci retracement levels in grey: 50% (146) and 61.8% (141) The 200-day moving average in red (143) We’re not recommending trying to catch a falling knife. In other words, if EA continues to drop, we have no interest in trying to time a turn. Instead, we’ll be looking to buy a potential price flip higher as a mean-reverting trade. Simply stated, given the damage already in place, we’d be encouraged if EA respects this collection of support. A 61.8% retracement of the decline would yield an initial target of 160. The suggested stop would be 142 (which is between the last two support points mentioned above). Also of note is that EA now is oversold for the first time since April. Back then, the condition lasted for a few days before a key low was etched. The difference is that back in the spring, most stocks, ETFs and major indices looked similar to EA given the sell-off from late March. Currently, of course, the corrective price action has been felt by some areas, but not all. In other words, in isolation, EA appears washed out enough to support a mean-reverting move. However, if the bigger growth names suddenly lose their collective footing, other stocks that have already gone through a tough time could suffer further. That’s the risk for EA, too. Bigger picture, this weekly chart shows that EA also now is back below a potentially very large bottoming formation, which it had broken above during the last push higher two months ago. A near-term bounce could help retrigger this pattern as well. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
