Trade of the Day: Nintendo Co. (NTDOY)
Chances are you’re familiar with Nintendo (NTDOY), the well-known Japanese consumer electronics and video game company. The ticker symbol may look a little funny with its five letters, but that’s because it’s an American Depositary Receipt (ADR), which is a U.S. share that tracks the Japanese shares that trades in Tokyo.
There is a lot to like about this stock right now. It is a major player in eSports, which is already a multibillion dollar industry and growing like you wouldn’t believe. Just this week, the famous Madison Square Garden in New York hired somebody to head up its eSports division. It’s probably the fastest growing sport out there, if you want to put it in that category.
In addition, NTDOY has been on the move after signing a deal with Tencent Holdings (TCEHY), the world’s largest e-gaming company and a favorite stock of mine. (It’s up 25% for us in three months in my NexGen Investor service.) Tencent is going to start distributing some of NTDOY’s games in China, which is huge for Nintendo. In the longer-term the deal may result with Nintendo selling their game consoles in China, potentially leading to a sales windfall.
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So now we need to look at the chart. One thing you’ll notice is that the volume has been robust recently, and it has been much bigger on the up days. You may also notice that the relative strength index (RSI) at the top tells us NTDOY is borderline overbought, suggesting that we might want to wait for a pullback. The RSI is a useful indicator but not foolproof, and the chart pattern is giving us another reason to wait for a pullback.
The stock has formed what we call an ascending triangle, which is essentially the flat line I drew at the previous highs in June. Along with that, you have an increasing bottom of higher lows since early July. When a stock breaks out of this pattern, it’s often one of the most bullish breakouts around. As you can see, NTDOY has broken out, but the key is that stocks almost always come back and fill the gap at the previous high. In this case, that would mean a pullback to between $45 and $46, which in all likelihood would mean a great buying opportunity.
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Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
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