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GameStop (GME) sell signal appears on the quarterly chart, key levels to watch from here

A major sell signal has appeared on GameStop's chart. Let's take a look at key GME technical levels to watch.

Asif Khan

December 13, 2021 11:10 PM

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GameStop's stock has been clobbered over the past few weeks, with the sell-off accelerating on Monday. While there are a lot of theories for what's going on with the company and its shares, this article is going to focus on some technical analysis of the GME stock chart. Bad news for longs, there is a sell signal that has appeared on the quarterly time period chart. Please take a look.

Today's negative technical indicator appeared when shares of GameStop (GME) plummeted below $145.22/share today. This was the low of the previous quarter, and marks the second time that shares have broken out of the previous period's range. GameStop's current quarterly bar has created an outside sell signal to the downside. We previously wrote here about the seemingly bullish signal earlier this quarter when the stock broke out above $231.44/share, and warned readers that these movements can be fleeting.

Today's breakdown in GME shares could get worse if the selloff continues below the $132/share low of two quarters ago. With options volatility peaking around 900% earlier this year in the first quarter, GameStop's stock spent most of the year trading inside of the previous quarters' range. This current outside bar on the quarterly chart is an indication that price equilibrium has not yet been reached, and that options volatility in the stock may have bottomed. Right now, the stock is closer to taking out that key $132/share level, so keep an eye out for a further breakdown below that price point.

While this article is focused on the technical analysis of GameStop's stock chart, it is important to provide context for today's selloff. Last night, we reported that Schwab had increased margin requirements on long, short, and options trading of GME shares. Now the accompanying panic sell-off today seen in other so-called meme stocks like AMC may be indicative of excessive risk-taking on the part of longs using borrowed money, or this news was a perfect excuse to scare people out of some stocks. 

GameStop (GME) shares are still up 638% in 2021, which means that long-term shareholders of the company are still up on their positions. The stock is beginning to lap some people's dates of entry into the stock, so there could be some people locking in capital gains while they can, or this is just a standard trading day in a stock market where 90% of volumes are handled by high-frequency trading computers.  

We may not know who is selling shares of GameStop, but what we do know is how technical trading algorithms think, and a breakdown of the quarterly chart below $145.22/share was all the ammo required to really push the shares lower. An additional move below April's $132/share low could provide additional momentum to the downside. Regardless of what happens over the next two weeks of trading before the end of the year, traders and investors will have a new range to pay attention to going into Q1 2022. The high and low prices of this outside bar on the quarterly chart will provide further guidance for next year, but the stock needs to get out of this year in one piece before investors start planning their next move.

Deciding between two options for my GME shares: HOLD or HODL…

— Ryan Cohen (@ryancohen) November 9, 2021

For now, there is a sell signal that remains actionable until the end of the year as long as GME remains below $145.22/share. For many GameStop shareholders who held the stock all the way down to the $40s earlier this year, they are probably not sweating the potential for more volatility, and this sell-off may even provide an opportunity to pick up more shares for some extremely bold investors. YOLO, as the kids say.  

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.

Full Disclosure:

At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long GameStop via GME shares (hedged with out-of-the-money put options)

Long GameStop via GME call options

Asif Khan

CEO/EIC/EIEIO

Asif Khan is the CEO, EIC, and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.