GameStop is on the brink of reclaiming its $5 billion valuation once more.

• GameStop’s stock has surged by 50% since the beginning of May, driven by bullish market sentiment and intense short pressure, leading to a short squeeze.
• Technical analysis suggests a bullish trend with the crossover of shorter-term moving averages (SMA 50) above longer-term moving averages (SMA 100 and SMA 150), indicating potential sustained upward movement in prices.
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GameStop Unexpected Rally In May

Since the beginning of May, GameStop, a video game retailer, has experienced a significant rally. From May 1st to May 7th, it surged by 50%, seemingly without a direct connection to the company’s business fundamentals. The likely driving force behind this rally appears to be a combination of bullish market sentiment and intense short pressure on GameStop shares, leading to a short squeeze. Notably, the S&P 500 has climbed by 3.2% since May, benefiting shares of companies with high betas, such as GameStop, which boasts a beta of around 2. As of mid-April, approximately 22% of the company’s float was shorted.

What The Technicals Are Saying

GameStop is on the verge of reclaiming a $5 billion valuation once again.

Since the end of April, there has been a bullish crossover of the 50-day moving average with the 100-day and 150-day moving averages. In technical analysis, a shorter-period Simple Moving Average (SMA) like the SMA 50 crosses over longer-period SMAs like the SMA 100 and SMA 150 typically signals a bullish trend.

The SMA 50 crossing the SMA 150 upwards is of particular significance, indicating even stronger bullish momentum. This suggests that the shorter-term trend (SMA 50) is gaining strength and surpassing the longer-term trend (SMA 150), hinting at potential sustained upward movement in prices.

In terms of the technical chart, the Relative Strength Index (RSI) initially surged above 90 during the strong rally in GameStop shares, indicating a heavily overbought condition. However, recent volatility has caused the RSI to retract, currently placing it neither in overbought nor oversold territory.

Could Further Gains Be Expected?

From the perspective of moving averages, the short-term trend indicates a sustained bullish movement. However, it remains unclear which specific catalysts could maintain this pattern. In my view, the most probable catalyst is GameStop’s correlation with the broader market, which should exert pressure on the high demand for shorting GameStop shares to be squeezed. Nevertheless, given the high volatility surrounding GameStop stocks, the road ahead could be turbulent.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)

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