Published , by Captain Business
Published , by Captain Business
The rise of GameStop's stock continues to confound many people, and GME shares made things worse for shorts today. The stock was up nearly 15% in intraday trading, on what appears to be no news. Luckily, there are some signals in the stock chart that may explain today's move with the help of some technical analysis.
It helps to look at stocks on multiple time frames, and it appears that GameStop had a buy signal today on both the daily and weekly charts. Please take a look:
GameStop's stock traded inside of the previous day's range on Friday of last week, setting up shares for a potential buy or sell signal on a break of the attempted price equilibrium. Shares broke out to the upside this morning when the price got above Friday's high of $166.47/share. This buy signal was only valid for today, but it was certainly the first sign of renewed momentum for the GME trade we saw this morning.
The chart pattern on GME's weekly chart is different from the daily buy signal mentioned above. Last week, GameStop (GME) shares traded below the previous week's low only to close back within that range. This is a three bar pattern that is called a rev strat by some traders. After trading inside of the previous week's range, GME shares broke down last week and then rallied back up with the rest of the stock market. A break out above last week's high of $169.95/share created an active rev strat weekly buy signal. This signal is still active until the end of the week, so it is possible that there are still more fireworks to come for GameStop shareholders as long as shares stay above $169.95.
So far this article has illustrated how a daily buy signal lead to a weekly buy signal. Time frame continuity is an odd concept, but it is very important to pay attention to. Who doesn't want to own a stock that is up on all time frames or conversely be short a stock that is down on all time frames? In the case of GameStop, the monthly chart is in the midst of its fourth straight inside month. Clearly, shares are tryng to find some sort of price equilibrium, but it is important to pay attention to the levels at which a breakout or breakdown could occur. With two weeks left in the month, there is plenty of time for the GME monthly chart to make a similar move to its shorter time frame counterparts. A breakout above the April 2021 high of $196.97/share would trigger an inside month and up buy signal, while a breakdown below the April 2021 low of $132/share would lead to a monthly sell signal.
We don't know if equilibrium will break this month, but with two shorter term buy signals appearing today, it is worth paying attention to the monthly chart for an idea of where things could be headed. A break above $196.97/share could send GME back into the $200s in no time, as the shares are still heavily shorted. Only time will tell.
Nearly 90% of all trading on the stock market is done by computers that pay a lot of attention to technical analysis. There is no gut or feeling driving these trades, so it would be wise to pay attention to the price levels above if you are brave enough to trade or invest in GameStop at these lofty valuations. The market currently values GME at nearly $13 billion, which may sound crazy, but it seems downright rational when compared to Dogecoin's $64 billion market capitalization. But obviously one of these assets is a cryptocurrency and the other is just a stock that acts like one.
This article is only meant for educational purposes, and should not be taken as investment advice. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.