You Ask, We Analyze: Why GameStop's Stock Looks Set To Advance Another Level

On Tuesday evening, Benzinga asked its Benzinga Pro community which tickers they’d like analyzed. From the replies Benzinga selected one ticker for technical analysis.

Pro user EatSleepLossRepeat wanted to see technical analysis on GameStop Corporation GME. GameStop reached a high of $225 in the extended trading session on Tuesday and in the premarket on Wednesday the stock was trading about 3.5% higher.

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The GameStop Chart: GameStop tested the bottom horizontal trendline of a descending triangle as support on Oct. 25 and bounced up. The stock then began trading in an uptrend and on Oct. 29 busted bullishly through the upper descending trendline of the pattern.

After GameStop broke up through the pattern, big bullish volume came in and the stock rallied over 12% higher on Monday and Tuesday. The above-average volume both indicates a high level of interest has returned and that the break from the pattern was recognized. On Tuesday, 3.88 million shares of GameStop exchanged hands compared to the 10-day average of 2.5 million.

Eventually, GameStop will need to consolidate the bullish run higher because the relative strength index (RSI) is running hot at about 67%. When a stock’s RSI nears or exceeds the 70% level it becomes overbought, which can be a sell signal for technical traders.

There is a gap above on GameStop’s chart between $287.50 and $296.70 that was left behind on June 10. Gaps on charts fill about 90% of the time, so it's likely GameStop will eventually trade back up into the range.

GameStop is trading above the eight-day and 21-day exponential moving averages (EMAs) and the eight-day EMA recently crossed above the 21-day, both of which are bullish indicators. The stock is also trading above the 50-day simple moving average, which indicates longer-term sentiment is bullish.

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• Bulls want to see big bullish volume come in and prop GameStop up over a resistance level at $209.85, while keeping in mind daily consolidation is eventually needed. Above the level, there is further resistance at $225.88 and $142.12.
• Bears want to see big bearish volume come in and drop the stock down below the $189.20 level, which could cause GameStop to lose support of all three moving averages. Below the levels, there is support at $169.88 and $166.70.