Wait and Watch for a Stronger Position in GameStop

It’s pulled back bigtime and is out of favor. But when it comes to today’s GameStop (NYSE:GME) stock, the investment game may just be beginning for bulls unafraid of apes and their sometimes-weighty influence. Let me explain.

Retailers walk past a GameStop (GME stock) store in New York City, New York.
Source: Northfoto / Shutterstock.com

GME stock. This year’s out-the-gate poster child for the short-squeeze play and one of a couple schemes popular with Redditors, also known as apes, has seen better days.

GameStop shares forfeited nearly 50% from a high of $344.66 set on June 8 to Tuesday’s finish at $180 less than six weeks later.

Not that you have to cry for those ape’s losses. In fact, a few Redditors may still be sitting on huge winnings. GME stock is still up 855% in 2021 if purchased when shares were largely viewed as a has-been, on-the-brink of bankruptcy bricks-and-mortar gaming retailer.

GME Stock and the Market

But in the spirit of fairness, a near 50% decline and regardless of how in-the-money one might still be, is no laughing or easily-dismissed matter. So, what’s the deal with today’s more persistent weakness in GME?

An earnings announcement a month ago certainly didn’t help. Shares of GME collapsed 27% in the report’s wake. Not that the results were actually bad. They weren’t. In fact, earnings and sales both topped estimates.

Nobody said apes could read, right?

Alas, the truth is apes and other bulls too, appear to have lost their footing on news of a capital raise and failure by GME to update investors with a clear roadmap for its transition into a digital e-commerce operation.

OK, so maybe they’re just nearsighted?

The other truth that nearly goes without saying, still heavy GME stock short-interest was there to assist with compressing the turnaround play’s rich-looking valuation.

Backlash and Pressure Add Up

Today though, the backlash and pressured price action in GME could be close to offering a stronger GameStop buy decision.

Short-term grumblings aside, GameStop’s stated goal of building an e-commerce business model and quest to be the “Amazon (NASDAQ:AMZN) of gaming” shouldn’t be dismissed as all talk and no action.

The fact remains the retailer has used multiple transactions to wipe out long-term debt. It’s third capital raise of $1.1 billion also permitted GME to gather a cash war chest of around $2 billion. And that should come in handy in allowing its handful of newly installed and highly capable C-suite talent from Amazon and Google (NASDAQ:GOOGL) to achieve its stated mission.

At the end of the day, these things take time. And investors, other than apes, will have to wait and see if recently appointed chair Ryan Cohen can execute similarly to his success at Chewy.com (NYSE:CHWY).

Still and on occasion, sometimes the benefit of the doubt is deserved. And backed by an appreciation for all the prep work being done to ensure GME succeeds, that optimism is further supported by a well-positioned price chart in GME stock for buying.

GME Stock Weekly Price Chart

GameStop (GME) shares entering well-supported technical area for buying shares

Source: Charts by TradingView

It would be nice to have a stat confirming the amount of float held long by Redditors. The thing is, while they certainly played a significant role in bringing a possible next chapter or GameStop Version 2 to the table, today they’re fickle interference.

Fellow ape stock AMC’s (NYSE:AMC) plunge in value the past couple weeks after management attempted to appease its Redditor base by axing an intended secondary, is evidence of those traders wanting it both ways and finding themselves still unhappy 100% of the time.

Despite the inconsistent behavior and not having a fully-qualified indicator detecting how many ape chefs are in the kitchen, I wouldn’t turn a blind eye to GME stock. On any given day and with or without that information, investors can still profit handsomely. And right now GameStop is affording bulls a nearby and smart-looking buy decision.

Technically and now in its sixth week of consolidating, GME stock entered a strong area of bullish support. As the illustrated weekly chart reflects, shares are trading in-between GME’s 50% and 62% retracement levels tied to the February low following its original short-squeeze. There’s more too.

GameStop is also challenging the 76% level associated with May’s bullish inside hammer candlestick formed immediately prior to shares surging higher. Further, it is in a testing position of a bullish channel line that’s developed since GME stock’s March low.

I’m optimistic of what I’m seeing on the GME stock price chart. And that evidence is buoyed by business decisions which remain an uncertain work in progress, but which appear to be advancing in a meaningful way.

The Strategy

At the moment the advice is to monitor shares for a purchase. In the days that follow, should GME stock generate a bullish stochastics crossover and validate a weekly candlestick bottoming pattern, then a purchase looks quite reasonable.

For likeminded bulls looking to play the investment game from an even stronger position, I’d also recommend a fully-hedged GME September $210/$260 collar for its approachable qualities off and on the price chart.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/gme-stock-gamestop-watch-for-stronger-position/.

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