GameStop Corporation GME is set to release its second quarter financial results after the market close on Wednesday.
The heavily battered stock was trading almost 7% lower before the event and is down more than 50% from the August 8 high of $47.99.
When the video game retailer posted mixed first-quarter results on June 1, the stock opened slightly lower the following day, but was up more than 12% intraday.
For the first quarter, GameStop reported a loss of $2.08 per share, which fell short of the consensus estimate of a loss of $1.45 per share. The company reported revenue of $1.378 billion, beating the estimate of $1.32 billion.
For the second quarter, analysts expect GameStop to report a loss of 38 cents a share on revenue of $1.27 billion.
Since GameStop began trading with a tight 4-to-1 split on July 22, no analysts have weighed in on the stock.
From a technical analysis standpoint, GameStop stock looks bearish in the long run, but a rebound is likely imminent. It should be noted that holding stocks or options on an earnings print is similar to gambling in that stocks can react bullishly to a loss of earnings and bearishly to an increase in earnings.
Option traders, particularly those who hold closing date call or put options, take additional risk because the intuitions that write the options increase premiums to account for implied volatility.
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The GameStop chart: GameStop began trading in a downtrend on August 8th, and while the stock has had a series of lower highs and lower lows, it has not posted a lower high since August 29th, when GameStop briefly bounced back to the $32.75. Since that date, GameStop has been in a downward spiral, indicating that a rebound is likely on the horizon.
- A rebound is also likely in the coming days as GameStop’s Relative Strength Index fell into oversold territory on September 2 by dipping below 30%. When a stock becomes oversold, especially on longer time frames, it can be a buy signal for technical traders.
- Wednesday’s lower prices came on above-average volume, indicating fears that selling is taking place. If GameStop doesn’t get a big reaction either way to its earnings print, bullish traders will want to see the stock trade sideways on declining volume to signal that sellers are running out of stock.
- GameStop has resistance above at $24.03 and $28.34 and support below at the psychologically important mark of $20 and $19.44.
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