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GameStop Earnings Preview: Two Must-Know Levels Ahead of the Print

GameStop has been the leader amid the Reddit stock short squeeze trade. With earnings due up though, things could get bumpy. Here's the trade.

Will we have a quiet holiday-shortened trading week or an active one? With GameStop’s  (GME) - Get GameStop Corp. Class A Report earnings on the docket, one never knows.

When GameStop reported earnings in June, the stock enjoyed a strong run into the print, but couldn’t maintain that momentum afterwards.

Shares roughly doubled in the month leading up to that report, but promptly fell more than 27% in the day after GameStop reported. That kickstarted an even larger correction, where shares ultimately fell by more than 50% in just under two months.

Now popping higher again with earnings coming up, could bulls be looking at more losses? It’s certainly possible.

AMC Entertainment  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report, Clover Health  (CLOV) - Get CLOVER HEALTH INVESTMENTS CORP Report and other so-called “meme stocks” have enjoyed periods of robust upside throughout the summer, although those rallies have been short-lived.

Can GameStop refuel the trade? Let’s look at the chart.

Trading GameStop Stock

Daily chart of GameStop stock.

Daily chart of GameStop stock.

On Aug. 24, GameStop stock erupted higher, gaining 27.5% in a single session. It was joined by AMC Entertainment, which also gained more than 20% that day.

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The latter has been grinding sideways and is trying to breakout, but perhaps the pre-earnings jitters are weighing on GameStop. While the stock hasn't necessarily rolled over, it’s struggling for upside momentum.

The stock is now down in three of the last four sessions, with the one daily gain in that stretch weighing in at just 0.26%. Not very impressive.

However, the 10-day moving average is acting as support for the time being. Without earnings in play, bulls would normally be looking for some type of rotation off of this measure.

When looking at the chart, there are two key levels to watch on the upside and two key levels to watch on the downside.

On a bullish post-earnings response, let’s see if GameStop can rally to the $231 area, the September high. Above that opens the door to $250 and the 61.8% retracement near $270.

On a bearish post-earnings response, first watch the $180 to $185 area. Near this zone, GameStop stock will find the 21-day, 50-day and 21-week moving averages.

Below that could put the $145 to $160 zone in play. Not only has this area been support over the last few months, but it’s where the stock finds its 200-day moving average.

First we must see if the stock can get to any of these levels. If it can, let’s see if it can reclaim and hold them (opening the door to the further levels) or if the stock is rejected by them.