GameStop to Report on Wednesday - Here's How to Trade It

GameStop is set to report earnings on Wednesday after the close, following a massive rally. Here's how to trade GME stock now.
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GameStop  (GME) - Get Report has found itself back on investors’ radar.

It’s not just because the company is scheduled to report earnings after the close. It’s also because the stock has rallied more than 53% in the past 10 trading sessions.

At one point, the shares were up more than 70% in just seven trading sessions.

Helping spark the move was an investment from Chewy  (CHWY) - Get Report Co-Founder Ryan Cohen, which was reported on on Aug. 31. GameStop stock rallied 24% that day, followed by a 15% gain in the next session.

The stock almost broke out when it reported earnings last June, but the 200-day moving average kept the name bottled up. It did break out in August and early September. 

While GameStop stock struggled over the past few months, it never really completely broke down. That’s despite the woes plaguing much of the retail space.

 The saving grace for the company may have been the strength in videogames, although we’ll find out more soon enough.

In the meantime, let’s look at the charts after the latest rally.

Trading GameStop Stock

Daily chart of GameStop stock.

Daily chart of GameStop stock.

I like the recent consolidation in the stock after such a powerful move to the upside. Consolidations are healthy and help unwind some of a stock’s overbought condition.

Specifically, such action is healthy ahead of a well-known public event, like earnings.

Still, the quarter and conference call will be the driving force for GameStop stock in the short term.

On a dip, I first want to see whether the 52-week high from December holds as support at $6.92. 

Below this will put the $6.40 to $6.50 area in play, which had been resistance multiple times over the past year. This area is really the first major downside level I will have my eye on.

The next is $5.50 — resistance from June and August — followed by the 200-day moving average and uptrend support (blue line). The 200-day has had a major impact on GameStop stock over the past year.

The point isn’t to highlight a plethora of support levels and hope one sticks. It’s a road map for the post-earnings action. 

In other words, if the stock dips, I’m looking to see which level holds and then use that as a way to measure the trade's risk. Below one mark opens the door to the other.

If the stock can maintain its recent momentum and clear the current high up at $8.45, it puts the 161.8% extension in play up at $9.61. 

Above that and potentially the two-times range extension is in play at $11.27, along with the 200-week moving average currently at $11.67.