GameStop Breaks Bullishly From This Pattern: Will History Repeat?

GameStop Corporation GME opened higher Thursday near the eight-day exponential moving average (EMA) after breaking up from a potential falling channel pattern on Wednesday.

When a stock trades in a falling channel pattern, it’s 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 downward. 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.

Because GameStop broke up from the formation, a longer-term reversal to the upside could be on the horizon.

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The GameStop Chart: Although GameStop broke up from the descending channel, the stock hasn’t yet negated its downtrend by printing either a higher high or a higher low. Bullish traders want to see GameStop rise up over the most recent lower high, which was printed on April 28 at $19.72, or for the stock to eventually retrace lower and print a bullish reversal candlestick above the Tuesday low of $15.41.

• It's worth noting that in the previous two instances in which GameStop has formed falling channel pattern,s the stock has made multiday reversals to the upside.
• Bearish traders want to see big bearish volume come in and knock GameStop back down under the upper descending trendline of the channel, which could continue to drag the stock lower and indicate Wednesday’s break higher was a bull trap.
• If GameStop is able to form a higher high over the next few trading days, the stock will also regain the eight-day EMA, which would give bullish traders more confidence going forward. The eight-day EMA is beginning to curl upward, which is a good sign for the bulls.
• GameStop has resistance above at $19.44 and $21.89 and support below at $15.41 and $10.16.

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