GameStop Lags AMC Entertainment: Here's Why A Big Reversal Could Be On The Horizon

GameStop Corporation GME was popping higher Monday, lagging AMC Entertainment Holdings, Inc, which was surging over 35% following news a court rejected the company’s proposed settlement offering with shareholders.

The video game retailer is being held down within a falling channel pattern on the daily chart and is also working to print an inside bar formation.

The falling channel 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 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.

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The GameStop Chart: GameStop started trading within a descending channel pattern on June 14 and the stock has been making a consistent series of lower highs and lower lows within the formation. The most recent lower high was formed on July 19 at $23.58 and the most recent confirmed lower low was printed at the $22.68 mark the day prior.

• On Monday, GameStop was forming an inside bar, with all the trading action taking place within Friday’s trading range. The pattern indicates consolidation and traders and investors can watch for the stock to break up or down from Friday’s mother bar on higher-than-average volume to determine future direction.
• If GameStop breaks up from the mother bar, it will also break up from the channel pattern, which could bring buyers in and accelerate a move to the upside. If the stock continues to reject the upper descending trend line of the channel, GameStop will eventually lose support at the 200-day simple moving average, which would be bearish.
• GameStop has resistance above at $24.03 and at $26.55 and support below at $21.97 and at $20.10.

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