Buy GameStop Shares on Earnings Rally? Here's the Must-Hold Level

GameStop stock is jumping on Wednesday, adding to this week's big gains. Here's how to trade the rally after its quarterly results.
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GameStop  (GME) - Get Report shares on Wednesday started off down almost 4%, then roared back to life as investors digested the videogame retailer's latest earnings report.

The company posted a loss of $1.61 a share, which was 8 cents better than expected. Revenue of $1.02 billion fell 34% from a year earlier and missed estimates by $70 million.

Comparable-store sales also missed the mark, falling 30% vs. estimates of a 27.5% decline. Excluding closed stores, comparable sales still fell 17%.

Given that the videogame industry had its best March in 12 years and a record April, investors were likely looking for something more upbeat than this. That’s even as GameStop’s online sales jumped by a factor of five in the quarter.

That’s why stocks like Activision Blizzard  (ATVI) - Get Report, Electronic Arts  (EA) - Get Report and Take-Two Interactive  (TTWO) - Get Report have all done so well lately. 

Let’s look at the charts for GameStop, as the stock is finding a way to rally on what seemed like mixed headline numbers.

Take-Two Interactive is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells TTWO? Learn more now.

Trading GameStop Stock

Daily chart of GameStop stock.

Daily chart of GameStop stock.

We’ve seen some wild action in GameStop stock this week. On Monday, the shares burst higher, climbing 21% and reclaiming the 20-day, 50-day and 200-day moving averages.

That seems more like a post-earnings move - but on strong results, not the ones we got on Tuesday after the close. In any regard, though, Monday’s move was powerful.

At one point in Tuesday's session the shares fell more than 9% before finding support at the 50-day moving average. They ultimately reclaimed the 200-day moving average in that session before closing just 1% lower.

Now the stock is rallying again on Wednesday on the mixed results and hitting its highest level in a month. My point isn’t to give a day-by-day history lesson of GameStop stock. Instead, it’s to point out just how strong the buying has been this week.

A 21% surge followed by bidding up a 9% drop and topped with another strong rally on weak earnings — what now?

The bulls now have several key levels on the downside to measure against, those being the 50-day and 200-day moving averages. Below those marks and $4 is in play.

On the upside, let’s see if GameStop stock can rally to the $6.50 mark. That was resistance throughout the fourth quarter and in January. Above that could open up $7.50 and fill the gap from June 2019.

While GameStop is clearly struggling and did not report a great quarter, price speaks volumes. Let’s see if the shares can maintain momentum from here. If not, the bulls can trade with a short leash.