GameStop Forms Bullish, Bearish Patterns Following Q2 Earnings

GameStop Corporation GME swung wildly Thursday after printing better-than-expected second-quarter earnings.

For the quarter, GameStop reported a loss of 3 cents per share on revenues of $1.16 billion, exceeding the consensus estimate of a loss of 14 cents per share on revenues of $1.14 billion.

Following the print, Wedbush analyst Michael Pachter on Thursday maintained an Underperform rating on the stock and lowered a price target from $6.20 to $6. The new price target suggests about 67% downside for GameStop.

GameStop’s price action on Thursday caused both a bullish and a bearish pattern to print on the stock’s chart because when GameStop rose to its high-of-day it formed a bearish double top pattern, but when the stock bounced up from the low-of-day it formed a bullish higher low and was looking to print a hammer candlestick.

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The GameStop Chart: GameStop negated a downtrend on Aug. 31 by printing a higher high at the $19.42 level, which was above the most recent lower high formed at the $18.82 mark on Aug. 21. On Thursday, the stock was working to print a higher low, which may confirm a new uptrend if GameStop bounces higher on Friday.

• Bearish traders want to see the double top pattern play out, which was printed near the $19.40 mark on Aug. 31 and on Thursday. If the bearish pattern is recognized, GameStop may fall lower on Friday to print a possible lower low, which would indicate Thursday’s bounce up from the low-of-day was a bull trap.
• Bearish price action for the stock is slightly more likely because on Aug. 30, a death cross formed on GameStop’s chart. A death cross occurs when the 50-day simple moving average (SMA) crosses under the 200-day SMA.
• Another likely scenario is that GameStop may trade sideways for a period of time, possibly forming a series of inside bars on decreasing volume. If that happens, traders can watch for an eventual break up or down from Thursday’s mother bar on higher-than-average volume to gauge the future direction.
• GameStop has resistance above at $20.10 and at $21.97 and support below at $17.95 and at $15.41.

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