GameStop (NYSE:GME) stock could have an awful day ahead as it released its quarterly numbers.
Stay around in the equity markets long enough and you’ll find the never-ending debate between two analytical approaches, the fundamental versus the technical.
You’ll often hear analysts talk about incorporating both approaches to offer some middle ground, but you might leave with a decidedly bearish impression if you apply this to GME stock.
If you’re new to my coverage of the video gaming products retailer, you’ll note in my disclosure below that I own GME stock. That might seem strange considering that I’m even entertaining the downside argument for my own investment. However, I discussed the contrarian bullish case for GameStop months before the meme-trade craziness.
Not to toot my own horn or anything but if you had bought GME stock around the time I initially covered it during the post-pandemic period, you would have garnered incredibly profitability on a percentage basis.
Long story short, then, I’m playing with house money. I sold a majority of my position and I’m waiting to see what will happen next. Indeed, GME stock could crash to $10 and it’d still be very profitable for me.
I want to conduct my analysis not based on how Lady Luck showed me favor — which is not a very repeatable “endeavor” — but rather, what to do for folks who bought higher up in the pricing spectrum.
Frankly, as a technical analyst, you should be concerned about the recent price action for GameStop shares. Since meme-stock fever took over GME, the period between Dec. 1 through Dec. 6 represents the first time (on a daily basis) that the equity unit has spent an extended time below the 200-day moving average.
Chartists will know that the 200 DMA is a longer-term barometer of market strength, posing concerns about future viability.
Is it Time to Ditch GME Stock?
What makes GME stock remarkable is that, despite the wildness in its pricing dynamics, it hasn’t even spent much time below the 50 DMA, which is a nearer-term barometer of resilience. When shares are below both their 50 and 200 DMAs, that’s going to send up some red flags. Or, at least it should.
If we’ve learned anything about the current market dynamic, it’s that you can never count out the meme traders. It’s almost as if they’ve corrupted that famous verse that evangelical athletes cite, Philippians 4:13; you know, the one about I can do all things? Indeed, greed is a powerful motivator.
Except that this story might not end in triumph but disaster, at least if you read between the lines of a New York Times op-ed penned by Yale professor Robert Shiller.
In it, he provided a fascinating thesis about how irrational trading sentiment was basically the same during the 1920s as it is in the 2020s. Part of Shiller’s argument is that popular culture provided a warning sign about unsustainable speculation.
The economics professor raised the point about a pop song that featured baby talk in its title, I Faw Down an’ Go Boom! One lyric included, “I got a tip to buy some stocks, lost my shirt, lost my socks. The minute that I buy some stocks, they faw down an’ go boom.”
Does this not remind you of the “loss porn” phenomenon that’s rippling throughout various social media platforms? Or the gratuitous self-deprecation of participants calling themselves degenerates and perhaps other terms I can’t repeat?
Citing the above isn’t to say that GME stock is inherently defective. Rather, speculation may have gotten way out of hand and it’s about to find its “real” market value.
Not Much Different from Before
I’ll grant that the meme traders have changed the game, but whether they did so permanently is an open matter. From what I’m reading from Shiller’s analysis, only the broadcasting of speculation has changed. The speculation itself remains the same.
Put another way, if YouTube was around during the Roaring Twenties, the vapidity would probably be on level terms.
And that’s a scary thought for GME stock because we like to think that we’re so sophisticated with our modern technology. Turns out, greed is greed, no matter the catalyst. And the weakness in the technical picture could be warning us about its consequences.
On the date of publication, Josh Enomoto held a LONG position in GME. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
