Trading Strategies For GameStop Stonk Before And After Q1 Earnings

GameStop Corporation GME is set to print first-quarter financial results after the market close Wednesday.

The stock was trading over 5% higher heading into the event and has risen about 12% since May 30, after breaking up above the 200-day simple moving average (SMA), which Benzinga called out May 23 as a likely occurrence. 

When the video game retailer printed its big fourth-quarter beat on March 21, the stock closed over 35% higher the following day but subsequently continued in its downtrend, which brought GameStop to a May 2 low of $18.06.

For that quarter, GameStop reported earnings of 16 cents per share, which heavily beat the consensus estimate of a loss of 13 cents per share. The company reported revenues of $2.22 billion, beating the $2.18-billion estimate.

For the first quarter, analysts expect GameStop to report a loss of 12 cents per share on revenues of $1.36 billion.

From a technical analysis standpoint, GameStop’s stock looks bullish over the longer-term, having been trading in an uptrend since the beginning of May. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders, particularly those who are holding close dated calls or puts, take on extra risk because the institutions writing the options increase premiums to account for implied volatility.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The GameStop Chart: GameStop gapped up over 6% on Wednesday but fell to completely close the lower gap intraday. The stock was looking to print a long-legged doji, which could suggest the local top has occurred and the stock will trade lower on Thursday, but the reaction to the company’s earnings could negate the candlestick.

GameStop is trading above the 200-day SMA, which indicates the stock is in a bull market. If GameStop continues to trade above the area, the 50-day SMA will cross above the 200-day, causing a golden cross to form, which would be bullish.

If GameStop suffers a negative reaction to its earning print and falls lower, the stock is likely to find support at the 200-day SMA, at least for a period of time. If that occurs, GameStop’s uptrend will be negated and bullish traders will want to watch for a sign of a reversal before taking a position.

GameStop has resistance above at $28.34 and $32.29 and support below at $24.03 and $21.89.

Photo via Shutterstock.