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Daily Chart Analysis: Gamestop Stock (NYSE: GME)

By: Wyatt Investment Research
Posted: 4/29/2014 10:11:00 AM
Referenced Stocks: GME

Gamestop ( GME ) appeared on the bullish scan last evening, but when I looked deeper into the stock, there was a lot to like. The daily chart shows how the stock has seen the 50-day moving average act as support and resistance in the past. Last October the trendline acted as support and then once the stock gapped below the trendline, it acted as resistance in December. The stock moved back above the 50-day in March and used the trendline as support later that month. Now the stock is hitting the trendline again.

gamestop-stock

The slow stochastic lines just made a bullish crossover while trying to move out of oversold territory. The last two times such an event has occurred were in December and late-January. Each those times saw the stock rally nicely in the ensuing weeks.

The weekly Gamestop stock chart provided another item of interest as the stock has recently moved back above its 13-week moving average. The pattern looks similar to what was going on in the summer of 2012. The stock sees the 13-week moving average drop below the 52-week and then rallies back above the 13-week and there is a bullish crossover between the two moving averages.

gme-stock

After the stock retook the 13-week, it rallied from the $17.50 level and doubled within the next eight months. If you don't like holding investments that long, it only took three months for Gamestop stock to move up 50% after it moved back above the trendline.

Another thing that is working in the favor of a GME rally is the sentiment toward the stock. The short-interest ratio is high at 8.8. The put/call ratio is 2.2 and that is in the 99 th percentile of readings for the past year. When you add in the analyst ratings of 12 "buys", five "holds" and three "sells", you get a sentiment composite reading of 17.75.

GME is one of those companies that reports outside the traditional earnings season , but there earnings release is scheduled for May 23. The company had been struggling been seem to have turned it around. This quarter's earnings growth is expected to be 23% higher than last year.

Given the amount of time between now and the earnings report, I wouldn't hesitate to add Gamestop stock to your portfolio. Once we get close to the earnings report, I would tighten up my stop. I can see the stock moving back up to the recent high in the $57 range by the end of summer. That would represent a gain of over 40% from the current level.

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