GameStop Consolidates After Bullish Surge, Traders Await Price Breakout
The GameStop company logo is displayed on a screen as traders work on the floor of the New York Stock Exchange during morning trading on March 22, 2023, in New York City. (MICHAEL M. SANTIAGO/BENZINGA)
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GameStop Corporation (NYSE: GME) was trading slightly lower Friday, continuing to consolidate after rising 11.17% between June 26 and Wednesday, which has set the stock into a bull flag pattern.
The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines or into a tightening triangle pattern.
For bearish traders, the “trend is your friend” (until it’s not), and the stock may continue downwards within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trend line and exit the trade at the lower trend line.
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Bullish traders will want to watch for a break-up from the upper descending trend line of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.
A bull flag is negated when a stock closes a trading day below the lower trend line of the flag pattern or if the flag falls more than 50% down the length of the pole.
The measured move, if GameStop breaks up bullishly from the flag formation, is about 12%, which suggests the stock could rise toward $27.50. Bullish traders want to see the stock break up from the downward sloping flag on higher-than-average volume to indicate the pattern was recognized, which would also confirm a new uptrend.
The consolidation within the flag has been taking place on lower-than-average volume, which is healthy. The candlesticks within the flag also have lower wicks, which suggests bulls are buying the dip when the stock falls under $25.
The stock is also trading above the 200-day simple moving average (SMA), with the 50-day SMA about to cross above the 200-day. If GameStop continues to trade above the levels for another day or two, the 50-day SMA will cross above the 200-day, which will cause a golden cross to form.
Bearish traders want to see big bearish volume come in and knock GameStop down under the eight-day exponential moving average, which would negate the bull flag. If that happens, the stock could continue to retrace toward the 200-day SMA.
GameStop has resistance above at $26.55 and $28.34 and support below at $24.03 and $21.89.
Produced in association with Benzinga
Edited by Joseph Donald Gunderson and Alberto Arellano
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