
How to Trade GameStop on Choppy Stock Movement
GameStop (GME) - Get Report , the mall-based retailer of gaming hardware and software, is scheduled to report quarterly results before the opening bell on Monday. The company faces the challenge of losing sales volume to the digital gaming market. Here's how to trade the stock.
The daily chart shows the shifting trend in sales, which most likely began after the stock set its all-time high in November 2013.
Shares of GameStop set a bottom on August 2, 2012; on Oct. 24, 2012, a "golden cross" was confirmed. (A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead.) Then the stock rose to an all-time high in November 2013.
The overall low to high gain was 275%.
This uptrend abruptly ended on a negative reaction to earnings on Nov. 21, 2013. So what should investors do now? Let's look at the daily chart for GameStop.
Courtesy of MetaStock Xenith
The daily chart shows that GameStop had a close of $38.46 on Thursday, down 6.7% so far in the fourth quarter and up 13.8% year to date. The stock is in correction territory -- 19.6% below its 2015 high of $47.82, set on Aug. 14.
The horizontal lines are the Fibonacci Retracements from the 2015 low of $31.69, set on Jan. 12, and the Aug. 24 high. A positive reaction to earnings on May 29 helped the stock achieve the 2015 high. Since then the price action has been extremely choppy.
Note the price gap lower on Nov. 13. This was caused by a downgrade by Pacific Crest, who stated its concerns about the growing impact of the shift to digital downloads. This is the challenge the company faces when it reports earnings on Monday, Nov. 23.
The stock has been trading back and forth around the 61.8% retracement of $37.85. Analysts expect GameStop to earn 59 cents a share.
Here's the weekly chart for GameStop.
Courtesy of MetaStock Xenith
The weekly chart for GameStop is negative, with the stock below its key weekly moving average of $38.46, and just above its 200-week simple moving average of $35.78. The stock has been above its 200-week since the week of Nov. 16, 2012, when the average was $22.91. The 200-week was tested again during the week of Jan. 11, 2013, when it was at $22.60, and again during the week of Jan. 16, 2015, when the average was $31.96.
The weekly momentum reading is projected to decline to 53.87, down from 63.19 on Nov. 13. Momentum scales from 00.00 to 100.00, with a reading below 20.00 oversold and a reading above 80.00 overbought. A rising reading above 20.0 is positive, while a declining reading below 80.00 is negative. This study is shown in red along the bottom of the chart.
Investors looking to buy GameStop should place a good-till-canceled limit order to buy the stock if its drops to $32.39, which is a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $48.71, which is a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










