The Chinese Gaming Sector Acts Poorly but Perfect World Tempts Us (PWRD)

Recently we ran a summary of stocks trading in the sector. The bottom line: many stock are breaking down or acting poorly and the sector might not be ripe for a long.

But we liked what had been constructive trading in Netease.com (NTES) and saw a low risk long entry. We took it and were rewarded with a small loss stop out. While we admit the sector looks technically poorer by the day we are tempted by PWRD offering us a similar low risk long entry in a stock that still acts well.

PWRD has had an incredible run without forming a proper base. It is extended. It has not touched its 50 MA during the bull run off the March lows and is trying to turn out of another correction above that line now.

PWRD reached its most recent peak on solid volume on September 23rd, the day the recent market correction started. While the stock has pulled back distribution has been light. The weekly shows a high volume reversal week, but all the volume came on one strong up day and the weekly shows relatively unchanged closes. In fact, PWRD has closed rather tightly for the past five weeks.


Last Thursday price broke below its recent consolidation on a bump in volume and closed below the 20 MA for the first time during this correction. Friday, however, showed no further price progress to the downside. Volume was higher than Thursday as price put in an “inside day,” where trading was contained within the boundaries of Thursday’s bar.


This sets up a low risk entry above Friday’s close with a stop under Friday’s low. We’re looking for a move back into the consolidation on its way to fresh highs.