GameStop Explodes Higher, May Regain Key Sentiment Indicator: Here's What To Watch

GameStop Corporation GME surged over 24% above Friday’s closing price when the markets opened Monday before running into a group of sellers, who knocked the stock down about 15% off the daily high.

On Oct. 21, Benzinga pointed out that exaggerated bullish divergence had occurred on Gamestop’s chart, making an upward break from the stock’s sideways trading pattern the most likely scenario. The stock broke up from its sideways trading pattern on Friday.

GameStop may also be experiencing a short squeeze, with 20.14% of its 268 million share float sold short. The stock is currently the #1-trending ticker on social media platform Stocktwits.

After trading lower to almost completely fill the gap, the bulls on Monday were attempting to drive GameStop back up above the 200-day simple moving average.

The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, whereas a stock trading under the 200-day SMA is considered to be in a bear cycle.

The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs, whereas the 50-day SMA crossing above the 200-day forms a bullish golden cross.

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The GameStop Chart: Monday’s move higher is also a continuation of GameStop’s uptrend, which began on Oct. 24. The most recent higher low within the pattern was printed on Thursday at $25.20 and the most recent confirmed higher high was formed at the $27.79 mark two days prior.

• If GameStop closes the trading day with a long upper wick, the stock will print a shooting star candlestick, which could indicate lower prices will come on Tuesday. The second most likely scenario is that GameStop will print an inside bar pattern and if that happens, bullish traders would prefer the formation occurs above or just slightly below the 200-day SMA.
• If GameStop is able to regain the 200-day and trade above the level for a period of time, the 50-day SMA will eventually cross back up above the 200-day, which would cause a golden cross to form. On Oct. 7, a death cross formed on GameStop’s chart, but the 50-day SMA has started to curl upwards, which is a positive sign for the bulls.
• GameStop has resistance above at $32.29 and $35.53 and support below at $28.34 and $27.69.

See Also: Short Seller Carson Block Says Muddy Waters Watches This Metric Closely In Wake Of Historic GameStop Short Squeeze