GameStop GME A Strong Stock Getting Stronger

In the trading and investment landscape, stocks that are initially strong tend to get stronger over time.

GameStop (GME) shares continue to show a powerful example of this statement with today’s gap-up and breakout event.

Let’s take a look at what brought us here and then study prior highs with structure on the Weekly Chart for current planning.

First, the Daily Chart and morning breakout:

For a bit of background on what got us to this point, see a couple of my prior posts on GameStop (GME):

“Breakouts and Uptrends for Gaming Stocks GameStop (GME) and Electronic Arts (EA)”

July 27 “Scanning for Stocks Most Extended from their 200d SMA”

July 17 “Scanning for Stocks with the Most Consecutive Closes in an Uptrend”

As you can tell, GameStop (GME) has been showing up on my screens and has grabbed my attention with the continued uptrend and strength.

The stock serves as a great example of scanning for stock strength and trend continuation with a relative strength leader.

The strength after the April 2013 breakout continued with stellar upside action on the daily chart that appeared even stronger on the weekly chart as seen below:

After a collapse in share value during the 2008/2009 recession, shares stagnated in a four-year range between $20.00 and $30.00 per share.

The breakout above $30.00 per share – and the long-term rectangle or sideways trendline – serves as a great example for breakout traders.

We can see from the Daily Chart that Momentum and Volume expanded (rose) in the direction of the breakout and new uptrend.

This is also an example of a “Breakout into Open Air” situation where a stock rallies sharply once it clears a critical resistance level – it can open a “feedback loop” of buying pressure where new buyers join with old short-sellers (buying-back to cover).

While GameStop provides plenty of educational lessons for traders and investors – particularly with breakout and strong trending stocks (what is strong now can get stronger tomorrow), let’s take a quick look at prior price levels that may come into play now.

I drew two highlighted horizontal lines connecting the 2008 ‘snap-back’ swing high and the December 2007 price high which may be of great interest currently.

For example, shares gapped up this morning toward the $56.50 per share level which is the closing high (weekly chart) from the 2007 key swing high.

Be careful here and look to the Daily Chart for any sign of support either into the $52.00 per share swing high or the “gap” confluence with the $50.00 per share “round number” reference level.

Otherwise, after the pullback/retracement here, another strong breakout above today’s gap-high ($56.00 per share) triggers another “Open Air” trade toward the $65.00 level (2007 high zone).

Even if you’re not looking to trade this stock currently, you can use it as an educational reference of the persistence of a trend and the benefits of scanning for ‘strong stocks getting stronger.’

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).