Meme stock Gamestop (GME), or as some now refer it to as Gamestonk, is up over 35% on 31 million shares traded. What is the catalyst for this move?
News is that Gamestop has tapped Chewy co-founder Ryan Cohen to lead Gamestop’s shift to e-commerce.
Cohen is serving as chairman of a special committee formed by GameStop’s board to help its transformation. Board members Alan Attal, Chewy’s former top operations executive, and Kurt Wolf, chief investment officer of Hestia Capital Management, also serve on the committee.
Cohen invested in GameStop last year to push the video game retailer to focus on online sales and turn away from physical stores. His involvement with the company helped spark the stock’s wild ride earlier this year. Shares of GameStop have surged 880% so far in 2021, giving the company a market value of $12.8 billion.
Just to rekindle your memory, Ryan Cohen’s Chewy is an online pet supply company which has had a 1 year performance of 193%. Hit highs of $120 before selling off with the pressure on the stock markets. Major support zone and trendline here, but a lot of it will depend on what the stock markets on a whole do. Eyes on that stimulus bill tomorrow.
Taking a cursory glance at the WallStreetBets reddit page, and everything I see has GME in the title. They are back to buying and holding the line.
For some of the fundamental traders/investors, this news about shifting to e-commerce is welcomed. Those that I have spoken with, say that Gamestop is going to be the next Blockbuster if they do not change their business model. People just do not buy physical copies of games as much.
EB games here in Canada (who are under the Gamestop umbrella), encourage you to pre-order games so they can keep their stock limited. They entice sales of physical copies by giving out pre-order bonuses such as downloadable content, and in some cases, artbooks, soundtracks, and even some sort of memorabilia. I purchased Cyberpunk 2077 and received a physical Samurai necklace, and some physical postcards highlighting locations in the game. It should also be noted that EB games is also selling collectables, action figures and anything related to geek/anime/otaku culture.
More and more gamers just download through steam, the Playstation store, the Microsoft store and Nintendo’s e-shop. This trend is gaining and it is about time Gamestop addresses this.
But I am sure you want to hear my opinion on the stock. As they say over on WSB: Do I “like the stock” ?
In the last week of February, I wrote about the meme stocks, and Gamestop was one of them. In that Market Moment post, I highlighted the gap which must break for further upside movement. Gaps act as resistance (price ceiling) but once they are filled, it indicates that the buyers have won the battle against the sellers, and we should expect further momentum.
Gamestop is doing a good job currently in breaking this level. Short sellers will definitely be nervous watching this price action. As you can see from the daily chart, today’s price action actually took us to the upper limits of this gap. Watch today’s close! A close above $180 is significant, but above $212 would fill this gap!
Going down to the intraday chart 1 hour chart, and we can see the levels we are working with much clearer. $180 is clearly support (the price floor), and $212 is the upper limit of the gap. Traders are awaiting the breakout (perhaps the WSB crew are frontrunning this!), or will await to see how price reacts on a pullback down to $180.
In summary, we have some major fundamental news that shifts the business model. Something like this can definitely be the catalyst to trigger a breakout and a gap fill! Hold the line traders!