GameStop Holds Key Support: A Technical Analysis

GameStop Corporation GME announced on Tuesday its plans to continue its North American expansion through its lease of a 530,000 square foot facility in Reno, Nevada.

The facility, which GameStop says will be operational in 2022, will help the company to grow product offerings and expedite shipping across the west coast.

GameStop's Underlying Statistics: GameStop was the target of a number of epic short-squeezes largely attributed to Reddit-based retail traders piling into the stock but GameStop’s bizarre underlying statistics made it difficult to believe the squeezes weren’t being manipulated by institutions and hedge funds.

The company’s statistics have become more believable recently and it appears short sellers have been closing their positions. In April, 128.17% of GameStop’s 46.65 million shares were held by institutions and insiders. As of June 15, that number had dropped to 60% of 56.41 million shares. The number of short positions on the stock has also dropped slightly from 11.97 million shares held short in May to 9.67 million in June.

Short interest still remains high at 24.54% and GameStop has not lost the interest of Redditors who believe naked shorting is still holding the stock down.

See Also: Study: Why Young Adults Are Taking Big Risks On AMC And GameStop

The GameStop Chart: On Tuesday morning, GameStop was trading down about 3.5% and attempting to hold the median line of a bullish falling channel it has been trading in since June 11. The stock was also holding a support level at the $195 area, which coincides with Friday’s low of the day.

The stock has seen fairly low volume recently, which has made its daily movement less volatile. GameStop’s relative strength index has also leveled out and remained around the 50% mark since June 11.

GameStop is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day EMA, both of which are bearish indicators for the short-term. GameStop is also trading below the 200-day simple moving average which indicates sentiment in the stock has become bearish.

If bullish volume were to enter GameStop’s stock it could easily regain the levels as it has become fairly common to see the stock move over 20% intraday and the stock is trading within 13% of all of the commonly followed moving averages.

GameStop also has a gap above between $288 and $296. Because gaps fill 90% of the time it's likely the stock will trade back at the level in the future to fill the gap.

Bulls want to see bullish volume break GameStop’s stock up above the top descending line of the falling channel, which would allow it to recapture the eight-day EMA as support. If it can bust through the resistance above, it has room to move up toward $223.

Bears want to see GameStop continue to trend downward in the channel and for it to close the day below a support line at $195.94. If it were to lose the level it could fall toward $189.20.

GME Price Action: GameStop was trading down 3% to $196.68 at publication time.