Wall Street is trying to deal with the slew of headlines that are affecting sentiment. In the past three weeks, investors went through another crisis of confidence. It’s hard to find stocks to buy with conviction when the headlines include possibilities of war. Therefore, today’s discussion about GameStop (NYSE:GME) stock is likely to raise some eyebrows.
Since GME stock has been so volatile, I consider this a tactical opportunity above all else.
This makes it easier for the investors to mostly consider the technical aspect. I reserve the judgments of the fundamental opportunity to the experts out there, and there are plenty.
I prefer to lean heavily on facts that come from the chart. When the opinions are so disparate about something, the only truths lie in the actual history. The chart represents data points that have happened, so the conclusions seldom include theory.
The experts tell us that machines are responsible for most of the action on Wall Street. This makes them somewhat predictable, because they only use chart data. Therefore, and to a great degree, the technicals become self-fulfilling prophecies. Whether you believe in the technical analysis or not doesn’t really matter. They represent actual moves, so they are pretty reliable.
GME Stock May Be Brewing a Substantial Rally
In this case, GME stock has the opportunity to rally another 30%. I admit that it is not ideal to chase a stock after it rallies 13% like GME did Tuesday. I expect this to not be an easy moonshot. There are levels of resistance like the ones here and at $130 per share. The biggest recent failing point on the chart came from Jan. 7. The stock opened at $160 per share and crashed 45% into its Jan. 24 bottom. That date is important because that’s when the entire market bottomed.
Maybe looking back this may have been the end of the current correction. However, it is too soon to tell and GME stock traders must remain humble and on edge.
The first challenge is to convincingly beat $119 per share. It would be ideal if the bulls can close above it to confirm it as footing. It is also imperative that they don’t fall too far, so not to lose momentum. This week, GME needs to hold above $103 to maintain the current trend off the January bottom. This process is so far progressing along the classic way to establishing a trough.
Fundamentals Need Not Apply
The fundamental metrics for the company are not really a selling point yet. They delivered 15% growth in 2021, but that was them rolling over the weak comps of a pandemic year. It was still 10% below 2019, and 30% below the year before that. Management clearly needs to do better growing the top line.
Luckily, GME stock has an incredible fan base, so they don’t need much fundamental reasoning to believe in it. Having momentum on their side is advantage enough for the bulls over the bears this month. Remember, this was the super-spike champ of 2021, so the bears may have lost their edge fighting it.
According to Yahoo finance, the expert analysts who cover GME stock have diverging opinions about its price target. Most are unsure so they rate it as a “hold.” The current GME price is well above all price targets, and miles away from the average. Let this be further reason to consider this a tactical trade, not an investment. When there are this many questions, I leave that to the buy-and-hope investors.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
