Technical Analysis Continued: GameStop (GME)

So yeah.. GME broke above the $60 resistance and pulled away to about $61 and change before pulling back the past couple of days. First, here are a couple of different charts, one showing a 5 minute time spread with GME on the “breakout” Tuesday and the other a daily spread with my signals as of this morning. Let’s start with the 5 minute time spread:

GME Chart - December 18, 2007 (5 Minute Chart) Note the volume on the resistance breakout. It’s about average when you compare the 5 minute volumes to the week prior. From what I gather, breaking resistance should carry a higher than normal volume in order to force the old resistance to become new support. In other words, low volume = not many buyers I think.

Here’s the daily chart before the markets open today:

GME Chart - December 20, 2007 A couple of things to note. First, the breakout we saw this week looks to be relatively light on volume which may not be a good sign. However, here’s my take on things. We’re currently in expiration week preceding the holiday season AND the end of the year so volume should be somewhat lighter than normal. Does this bode well for the $60 to become new support? I’m not sure. This is the first time I’ve had to deal with the markets and the holiday season so I guess I’ll find out along with the rest of you. A quick glance at the MACD shows the averages diverging from the trigger line in an upward trend leading me to believe GME may have some momentum behind it. From the slow stochastic, it appears there may be a cross in lines within the next couple of days, perhaps creating a mildly bullish signal. If the cross were to happen under the 20 horizontal, I’d be more inclined to feel very bullish with GME.

For now, I’m currently playing GME with a mildly bullish observation. If I can grab a couple of points from GME with my open calls, I’ll send them a letter thanking them for paying for my copy of Super Smash Bros. Brawl.

By the way, if you have any need for relaxation, pick up a Wii and a copy of Super Mario Galaxy. By far the best investment you’ll make in terms of mellowing out for a couple of hours a day.

Currently long GME Jan Calls


Jorge 20 December 2007 Equities, Technical Analysis
Technical Analysis: GameStop (GME) Happy Holidays!

Viewing 2 Comments

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    well nobody could argue with the gme chart's consistent uptrend, no alarming spikes, but the fundamentals concern me. PE 44 and peg @1.8... that seems hard to sustain for a retailer, no matter how hot the product they're selling is. the long term trend for all media is digital distribution, that leaves for low barriers to entry and distribution by the game makers themselves.
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    Normally, I'd worry about the fundamentals as well. While I think regardless of your trading style you need to have a bit of both technicals and fundamentals, I'll let the market makers decide when a stock's become fundamentally overheated. I used to trade based on fundamentals and I was burned badly. If the market makers say GME's fundamentally hot, I'll see it on the charts and run like the wind.

    I agree though. Sooner, rather than later, we'll see more and more digital distributions which, at least I would think, could help lower the costs of games somewhat. I know some places such as Digital Downloads have popped up, but I couldn't see paying full price for a game plus a downloading fee when I could go to the stores and pick up the game for the exact same price with the original CD and other goodies.

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