What To Watch On GameStop As The Stock Consolidates Above This Major Level

GameStop Corp. GME has surged over 18% since the stock began trading on a 4-1 split adjusted basis on July 22. On Wednesday at press time, GameStop was trading mostly flat after an early morning surge saw the stock spike up over 5%, where it ran into a group of sellers.

Initially, between July 22 and Aug. 8, GameStop surged 34.13% higher. The recent pull back has been to consolidate the massive increase, which has also helped to cool GameStop’s relative strength index (RSI).

The consolidation has been taking place within a falling channel pattern on the daily chart. The pattern is bearish for the short term but can be bullish down the road.

For bearish traders, the "trend is your friend" (until it's not) and the stock is likely to continue downwards. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.

Bullish traders will want to watch for a break up from the upper descending trendline, on high volume, for an entry. When a stock breaks up from a descending channel, it's a powerful reversal signal and indicates a rally is likely in the cards.

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The GameStop Chart: The Grapevine, Texas-based company started trading in a falling channel pattern on Aug. 8, making a series of lower high and lower lows within a downtrend. The most recent lower low was formed at the $38.60 level on Tuesday and the most recent confirmed lower high was printed on that same day at $45.53.

• GameStop has mostly been trading near the lower range of the falling channel but on Wednesday, was trading in the upper half of the channel, testing the median line as support. If GameStop is able to continue trading in the upper half of the channel, the likelihood that the stock will eventually break up from the pattern increases.
• The stock is also trading in an inside bar pattern on the daily chart, with all of Wednesday’s price action taking place within Tuesday’s range. Bullish traders would like to see GameStop break up from Tuesday’s mother bar later on Wednesday or on Thursday on higher-than-average volume, which would also mean the stock would break up from the falling channel.
• Bearish traders want to see the upper descending trendline of the channel continue to act as resistance, and for the channel to continue guiding the stock lower until it loses support at the 200-day simple moving average.
• GameStop has resistance above at $43.31 and $47.71 and support below at $39.92 and $35.53.