Unity Software (U) is a best-of-breed, content-creation engine for video game development, with key partnerships that include Microsoft, Apple, Nintendo, and Sony. Unity Software has seen its fundamentals stabilize thanks to conservative 2024 guidance. That sets the company up for potential upwardly revised forecasts in future earnings reports, writes Matthew Timpane, editor at Schaeffer’s Investment Research.

A surprise in advertising dollars across its mobile platform could shock Wall Street bears if the consumer remains strong throughout 2024.

Meanwhile, the stock recently crossed above its 80-week moving average, which capped gains back in September. Now back above its 20- and 52-week moving averages as well, these averages are curling to support recent price action. There are possible price retracement targets sitting significantly above that present a compelling risk/reward setup. U’s IPO price is $52, the $85-$95 zone is a massive support/resistance level, and a 50% Fibonacci retracement from highs to lows would sit at $115.

An unwinding of pessimism could trigger tailwinds. The stock’s 12-month consensus price target is a 17% premium to its late-2023 perch, which could force analysts to revise their targets in 2024. Short interest was a healthy 9.5% of U’s total available float, with the majority of these bearish bets added when the stock was below $40. A breakout from this base could trigger a massive short-covering rally in 2024.

In the options pits, there are large put levels at the 25- and 30-strikes to trade against all year. The good news for premium buyers: The stock's Schaeffer's Volatility Index (SVI) of 53% sits in just the 11th annual percentile, revealing low volatility expectations are being priced into near-term contracts.

Plus, the stock has consistently rewarded premium buyers over the past year, per its Schaeffer's Volatility Scorecard (SVS) reading of 72 out of a possible 100. This shows the equity has tended to make larger-than-expected moves on the chart, compared to what the options market has priced in.

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