Shares in Nintendo are coming back from their highs following an impressive rally underpinned by the insta-mania surrounding some kind of new game for smartphones or something. That’s right, Pokémon Go – the killer (quite literally in some cases, so we’ve heard) new augmented reality game – propelled shares in the console giant up 120% between 6^th and 19^th July. Considering the fact that bull markets are generally killed on optimism, the ‘mania’ phase (be fearful when others are greedy and all that…), has the Nintendo share price rally been overdone?

The game has not come without its problems. Servers overloaded by sheer user volume, hackers taking them down for periods of time, people killing themselves by inadvertently walking across minefields, off cliffs, that sort of thing. It reminds me of that period a couple of years ago when kids were starving to death playing World of Warcraft. Interestingly though, emaciated corpses found still grasping the mouse did not not prove a hindrance to parent company Activision Blizzard’s share price – that has gone from $4.50 when WoW was released to $37.70 today. An increase of over 800%!

Some of the most successful games, like the most successful drugs, have caused immense pain to many. However, the correlation goes the other way too – indicating that many more have simply had a great time playing/doing them, with little if any negative read across to their daily lives. Sure, we’d probably all be healthier and less knackered if we were to wean ourselves off addictive drugs like caffeine, alcohol and whatever other delights we like to indulge in of a Saturday eve in pursuit of escapism, but as long as we’re not hurting ourselves or others then all’s well. Same goes for augmented reality – let’s enjoy the wonders of chasing stupid little pretend animals across the South Circular, but let’s try not to run under lorries too much while we’re at it.

While Nintendo shares are almost certainly due a correction following the last two weeks’ impressive rally, Pokémon Go represents the baby steps of a whole new technology, one that has applications everywhere from gaming to therapy, marketing and brainwashing, as well as serious things like, er, gaming. What we have here could be simply the tip of a massive iceberg – something the captains of transatlantic cruise ships would do well to keep an eye out for while trying to catch that Gyarados that just appeared about 400 miles south of Newfoundland.

So while the bar has been set pretty high with Pokemon Go, if Nintendo can stay on the cusp of this particular wave then there’s little reason to believe that current overbought conditions won’t mature into a new trading range or even a more comfortable uptrend. This is era-defining stuff after all.

Augustin Eden, Analyst (20 July)