How To Trade GameStop Stonk Before, After Q2 Earnings

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

The heavily beaten-down stock was trading almost 7% lower heading into the event and is down more than 50% off the Aug. 8 high of $47.99.

When the video game retailer printed mixed first-quarter results on June 1, the stock opened slightly lower the following day but rallied over 12% intraday.

For the first quarter, GameStop reported a loss of $2.08 per share, which missed the consensus estimate of a loss of $1.45 per share. The company reported revenues of $1.378 billion, beating the $1.32-billion estimate.

For the second quarter, analysts expect GameStop to report a loss of 38 cents per share on revenues of $1.27 billion.

Since GameStop started trading on a 4-1 split adjusted basis July 22, no analysts have weighed in on the stock.

From a technical analysis standpoint, GameStop’s stock looks bearish over the longer-term but is likely to bounce imminently. 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 intuitions writing the options increase premiums to account for implied volatility.

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The GameStop Chart: GameStop began trading in a downtrend on Aug. 8, and although the stock has made a series of lower highs and lower lows, a lower high hasn’t been printed since Aug. 29, when GameStop briefly bounced up to the $32.75 level. Since that date, GameStop has been in a downward spiral, indicating a bounce is likely on the horizon.

• A bounce is also likely to come over the next few days because GameStop’s relative strength index fell into oversold territory on Sept. 2 by falling below 30%. When a stock becomes oversold, especially on larger time frames, it can be a buy signal for technical traders.
• The lower prices on Wednesday were coming on higher-than-average volume, which indicates fear selling may be taking place. If GameStop doesn’t receive a big reaction in either direction to its earnings print, bullish traders will want to see the stock trade sideways on declining volume to indicate the sellers are running out of shares.
• GameStop has resistance above at $24.03 and $28.34 and support below at the psychologically important $20 mark and $19.44.