GameStop Forms Bullish Pattern Heading Into Earnings: Will This Time Be Different?

GameStop Corporation GME is set to print its second-quarter earnings after the market closes on Wednesday. After the video game and electronics retailer reported a first-quarter earnings beat on June 9, the stock fell 20% the following day and entered into a months-long downtrend.

The stock remains popular within various Reddit communities and continues to trend in the r/WallStreetBets and r/Superstonk forums with users hoping the reaction to this earnings print will be different. u/Ging9tailedjecht posted a meme with the heading, "The past is not always indicative of future performance. We may rip... We may rip hard. **Buckle Up**."

On Wednesday GameStop's stock was trading down providing a dip for those who want to take a position to hold through the earnings print. Taking a position in a stock before a known news event, especially earnings, is risky because a stock can soar on a miss and plummet on a beat. Often times the guidance a company provides for the subsequent quarter is more important than revenue and EPS numbers because the market is generally forward-looking.

See Also: Is GameStop a Buy Right Now?

The GameStop Chart: Following its last earnings print GameStop fell into descending channel and made consistent lower highs and lower lows until reaching $145.22. On Aug. 23 GameStop’s stock broke bullishly up from the channel and ran over 40% higher over two trading days before entering into a five-day period of consolidation.

On Sept. 1 the stock attempted to close the trading day up above a support and resistance level at $225.88 but failed. Since then, GameStop has traded lower into another descending channel pattern. Descending channel patterns are considered bullish from a technical standpoint indicating GameStop’s stock could break up bullishly from the pattern, just as it did in August, at some point in the future.

GameStop has a gap overhead between about $288 and $296. Gaps fill 90% of the time and it's likely GameStop will trade back up into the range in the future.

On Wednesday GameStop hit a support level at $189.20 and bounced. The level also aligns with the 21-day exponential moving average (EMA), which provided extra support. GameStop is being held down by the eight-day EMA, however, and will need to regain the level to avoid causing the eight-day EMA to cross below the 21-day.

GameStop is trading about 35% above the 200-day simple moving average, which indicates overall sentiment in the stock is bullish for the long term. The 200-day SMA is also trending upwards which is a good sign for the bulls.

• Bulls want to see big bullish volume come in and push GameStop up through the top descending trendline of the channel and through an upper resistance level at $209. If the stock can regain the level as support, it could trade up toward the $225 mark.
• Bears want to see big bearish volume drive GameStop’s stock down below the $189 area. If the stock loses the level as support, it could fall toward $169.