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GameStop Breaks Out Following M&A Speculation


GameStop Corp. (GME) shares rose more than 2% on Tuesday, following a 9% increase on Monday, after the company confirmed that it’s holding “exploratory discussions” with possible suitors. According to Reuters, Sycamore Partners is one of the private equity firms interested in the company. In its one-paragraph statement, the company added that it does not intend to make any additional comments about the discussions until it’s appropriate. 

The move comes shortly after Netflix, Inc. (NFLX) unveiled plans to partner with Telltale Games and add basic games to its offerings, including a “Stranger Things” theme and a version of “Minecraft.” The games will be delivered through video files and controlled through a remote equipped with gaming buttons. The move won’t create direct competition but could cannibalize the broader low-end gaming market. (See also: Ray Dalio Made a Big Bet on GameStop in Q1: 13F.)

Technical chart showing the performance of GameStop Corp. (GME) stock

From a technical standpoint, GameStop stock rebounded from the pivot point at $12.77 and broke out from several key resistance levels to briefly touch the 200-day moving average at $15.82. The relative strength index (RSI) is approaching overbought levels at 68.12, but the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that the stock could see some consolidation before making a move higher over the long term.

[To learn more about supplemental technical indicators such as the RSI and the MACD, check out Chapter 4 of the Technical Analysis course on the Investopedia Academy.]

Traders should watch for some consolidation below the 200-day moving average at $15.82 before a potential breakout from these levels over the long term. If the stock moves lower, traders should watch for support at R2 levels of $14.36, R1 levels of $13.61 or trendline support at around $13.25. Of course, most of the price action will be driven by M&A speculation, although no interim news is expected before the discussions conclude. (For more, see: GameStop Suffers From Digital Switch, Mall Slump.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.

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June 19, 2018

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