Schaeffer's Trading Floor Blog

Chart to Watch: GameStop Corp. (GME) Rallies Into Resistance

GME heads higher on little news, encounters an overhead trendline

by 2/25/2014 2:58 PM
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GameStop Corp. (NYSE:GME) is seeing interesting price action today, rallying as much as 8.2% at its intraday peak without any significant news to account for the move. With around 60 minutes left in the trading session, the stock has pared its gains ever-so-slightly to 7.4%, at $38.70.

Today's sharp move took the shares headlong into their 40-day moving average. This descending trendline has served as resistance for the last three months, and rebuffed a previous rally attempt in late December. Today's jump higher also lifted the shares north of their upper Bollinger Band, which could indicate a reversion to the mean is a near-term possibility.

Daily chart of GameStop Corp. (GME) since October 2013 with 40-day moving average and Bollinger Bands

Short sellers could be playing a role in today's pop higher, if they opted to move toward the exits. As of the most recent reporting period, the number of shorted GME shares stood at 35.7 million, the highest level since early May. This amounts to nearly one-third of the security's available float, which would take roughly seven sessions to cover at the stock's average daily volume.

GameStop Corp. (GME) short interest since February 2013

GameStop Corp. (NYSE:GME) could also face a change of heart among the brokerage brunch. Currently, despite a year-to-date deficit of more than 21%, the stock has earned 10 "buy" or better ratings, compared to four "holds" and just one "strong sell." With technical resistance looming overhead, brokerage downgrades and/or price-target reductions -- such as the one from Benchmark on Feb. 12 -- could exacerbate selling pressure in GME shares.

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