- Shares of GameStop rose as much as 47% on Thursday after finding technical support at its 50-day moving average.
- The stock had previously fallen 34% after its first earnings report, as a sharp short contraction failed to impress investors.
- Here’s the technical outlook for GameStop shares as it continues to experience increased volatility.
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GameStop rose as much as 47% on Thursday as the stock found technical support from traders at its 50-day moving average.
The video game retailer’s first earnings release since January’s epic downturn failed to impress investors, causing a 34% drop in Wednesday’s trading session.
But GameStop share buyers weighed in around the $ 125 level, which currently coincides with the 50-day moving average. Moving averages are a lagging trend-following indicator that technical analysts use to smooth price movements and help identify the direction of the current trend.
Traders often view the 50-day moving average, which is the average daily closing price of a stock during its previous 50 trading sessions, as a short-term moving average that often represents areas of support or resistance for a stock. .
If GameStop shares decisively manage to hold the 50-day moving average as support, then a surge back to their pre-earnings levels of around $ 175 could be in order. That would fill a technical void created by falling earnings, and it would also coincide with a new mind-blowing price target from Jefferies.
But a single day of trading above its 50-day moving average is not a sure sign that GameStop shares will continue to trend upward, as declining momentum indicators such as the Relative Strength Index suggest there are fewer buyers. intervening to support the action than in previous weeks months.
Other moving average traders are likely to be on the lookout if GameStop falls below its longer-term 200-day moving average. The rising 200-day average is currently near the $ 39 level, representing a possible 71% drop from current levels.
But a stock’s fall below its 50-day moving average does not mean that a rapid decline to its 200-day moving average is necessary. One signal traders look to generate a buy or sell signal is the crossover between the shorter 50-day moving averages and the longer 200-day moving averages.
A buy signal is displayed when the short-term moving average crosses above the long-term moving average, as happened with GameStop in September. With this method, a sell signal would not be generated for GameStop unless the 200-day moving average crossed above the 50-day moving average.