Editor’s Note: This article was updated on May 26, 2021, to correct the exchange for ALPP.
These days, it’s so yesterday for this year’s new breed of movers and shakers on Wall Street and those celebrating it. But with the fast money action and cameras attention turned elsewhere, it’s “game-on” time for GameStop (NYSE:GME) stock bulls looking at the bigger and slightly longer-lasting picture. Let me explain.
Reddit’s Wallstreetbets message board and online brokerage disruptor Robinhood have made names for themselves in 2021.
A Look at GME Stock
If readers need a CliffsNotes lesson on recent events, back in January GameStop was, as a questioning and furrowed brow nightly news alerted us, the saga of an epic short-squeeze. GME stock pitted a mostly pint-size David long the shares versus much larger, professional monied shorts up to their eyeballs in bearish GME stock positions totaling 1.4x the float.
There were other short-squeeze and two-for-the-price of one low-priced, heavily shorted stock plays to be sure. AMC (NYSE:AMC). Blackberry (NYSE:BB). Alpine 4 Holdings (OTCMKTS:ALPP). Sundial Growers (NASDAQ:SNDL) and many others. And one or two may have made the wallets of this merry band of marauders’ wallets fatter and even slightly sooner than GME shares.
But it was unequivocally the GME stock show.
The beleaguered brick-and-mortar video game retailer’s shares exploded in percentage terms by roughly 2,700%, gained more than 460 Benjamin’s and jumped into a big league’s valuation of around $40 billion in the span of under four weeks from the start of the new year.
It didn’t last. And just as quickly, GME stock plummeted 92% from a high of $483 to a low of $38.50 over three weeks’ time. And during that span and into today, unsurprisingly the gamers and cameras turned their attention toward other stocks or markets in need of attention. Dogecoin!! (CCC:DOGE-USD)
Tapping the Capital Markets
Still and in the wake of the dizzying silliness, the rise in GME stock’s brief good fortune wasn’t for naught and was smartly capitalized on by GameStop.
Tapping the capital markets while the getting was more than simply good. And the company has gotten rid of debt while padding the outfit’s cash war chest. And GameStop isn’t interested in hoarding the money for a rainy day, either.
Today and with management that includes Chewy (NYSE:CHWY) ace and co-founder Ryan Cohen, a plan to become the “Amazon of gaming,” a profitable turnaround projected by next year and who knows, maybe another fortifying ace up its sleeve as a crypto adopter – GameStop 2.0 is looking like a distinct possibility.
GME Stock Weekly Price Chart
Source: Charts by TradingView
If a reinvigorated and hopefully longer-lasting bid in GME stock is going to happen today or in the nearby future, shares will need to clear resistance formed over the past couple months. The good news is the challenge appears close at hand and worthy of a purchase today. Well, kinda, sorta.
Technically, several weeks of constructive inside candlestick consolidation work in GME has continued to hold the 76% retracement level. The observation is that’s a positive for shares.
Another beneficial feature is the price action has been reinforced by a confirmed bullish double-bottom formation. What’s more, the patterned activity is complemented by a properly aligned stochastics indicator trending out of oversold territory.
What more could investors ask for? As hinted, a lateral barrier near $190 will need to be overcome before anyone other than swing-from-the-fence day traders or high frequency types can begin to really appreciate an emerging and profitable trend as being underway.
The Shorts Return
But let’s not kid ourselves either. It’s not all about hoped-for upside in GameStop.
GME stock’s short interest has grown from sub 20% in February and back toward 30%. That’s an increase of nearly 50% and puts GameStop shares back in the ranks of the market’s most-shorted stocks. And more than seeing those bears as pawns to help bulls to a victory dance, I’d strongly suggest a collar strategy for a long GME position. This also recognizes still large downside risk embedded in today’s relatively quiet weekly candlesticks.
Here’s the bottom line (and hopefully helping with that future profitability). It’s still about having a smart defense first when it comes to GME. One fully hedged and very adaptive spread that can help investors get their game on is the July $150/$290 collar combination.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.