- GameStop shares stage another huge rally on Monday.
- GME closes near the intraday high, up 12% at $168.93.
- GME, AMC king meme names, and king rallies on Monday.
Update: GME shares roared higher on Monday, breaking out of their traingle formation and closing near the intraday – a bullish sign. GME signed for a near 12% gain to close at $168.93. It was very much risk-on across the meme stock space as all stocks rallied sharply. GME now remains bulish with support at $163.79 and $159.61, the key to the short-term trend. The first target is the high from March 26 of $218.93.
April 26, 2021:
GameStop (GME) is still struggling for momentum as retail volume exits the markets for the real world. Volume across all meme favourites – GME, AMC, PLTR, KOSS and others – has dropped. Volatility is also down sharply in these names, though it could not have gotten much higher.
GME shares have been fighting back in an otherwise downtrend and technically still look bearish. The last few sessions have seen price rises run into resistance from the 9 and 21-day moving averages. The Moving Average Convergence Divergence (MACD) indicator also is in a crossover sell signal formation from mid-March.
GME stock chart
Fundamentally, GME is way overvalued. Many high growth stocks bring high valuations such as Netflix, as investors bet that earnings will grow into the valuation. This strong growth allows earnings multiples to soften, and eventually a successful company does not look so overvalued on a fundamental basis. Again, the ones such as Netflix, that is.
But GameStop is at a much earlier stage. It does not yet have a proven model and instead is aiming to replicate other online retail strategies. The difference is GameStop has formidable competitors in online game sales from vested interests such as Sony (owner of Playstation) and Microsoft (owner of XBox).
Technically, the picture is still bearish. Each spike high fails lower than the previous one, as evidenced by the downtrend line from the January 28 high.
The MACD crossed over in mid-March giving a sell signal and it remains in a bearish crossover. The Directional Movement Index (DMI) has also crossed over, giving a sell signal. However, this is not a strong signal as the ADX line is below 25, indicating a weak trend and a weak signal.
Apart from the indicators, the chart is also painting a bearish picture. Declining volumes and a triangle formation ultimately will lead to a breakout. Usually, breakouts are sharp and triangle breakouts notably so. GME is below the 9 and 21-day moving averages, which are themselves pointing lower. All bearish signs.
Going short this one can lead to all sorts of troubles as has been well documented. Instead, a bearish position might be best served by purchasing the $140 puts expiring May 7 at a cost of $8.38, thereby limiting your loss in the event of another squeeze. If you take the triangle breakout theory to the letter, then the breakout is the size of the entry, in this case $102. That would give GME a target of $40 on a breakout. So playing more out of the money options of a longer duration might work. The June 18 $70 puts are trading at $2.86.
On the other hand, if GME breaks out of the triangle to the upside, the target would be $264. At present GME is more bearish, but if it breaks the 9 and 21-day moving averages and breaks out of the triangle to the upside, then the picture has changed. Look for confirmation from a MACD crossover and or a DMI crossover.
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