GameStop Corporation (NYSE:GME) was spiking higher on Thursday after consolidating a 64% surge on May 25 and May 26 that brought the stock to the $148.46 level.
The two-day rally, paired with three days of consolidation between Monday and Wednesday, settled GameStop into a bull flag pattern on the daily chart.
On Wednesday, GameStop printed mixed first-quarter financial results. The company beat on its top-line figure, reporting revenues of $1.38 billion compared to the consensus estimate of $1.32 billion, but reported a quarterly earnings loss of $2.08 per share, which came in below the loss of $1.45 per share expected by analysts.
The beat on revenues combined with the bullish setup on GameStop’s chart likely contributed to the stock’s soaring price on Thursday.
The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines or into a tightening triangle pattern.
- For bearish traders, the "trend is your friend" (until it's not) and the stock may continue downward within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.
- Bullish traders will want to watch for a break up from the upper descending trendline of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.
A bull flag is negated when a stock closes a trading day below the lower trendline of the flag pattern or if the flag falls more than 50% down the length of the pole.
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The GameStop Chart: GameStop’s bull flag was formed between May 25 and June 1, with the pole created over the first two days of the time frame and the flag printing over the following three days. On Thursday, GameStop was attempting to break up through the upper descending trendline of the flag on higher-than-average volume on lower timeframes, which indicates the pattern has likely been recognized.
The measured move of the pattern indicates GameStop could soar toward the $190 mark.
- The bullish price action has caused the eight-day exponential moving average (EMA) to cross above the 21-day EMA, which should give bullish traders more confidence going forward. Bulls will want to see GameStop close the trading day above the 50-day simple moving average, which could indicate a longer-term bullish cycle is on the horizon.
- GameStop is trading in a confirmed uptrend, with the most recent higher high printed on May 26 and the most recent confirmed higher low formed at the $86.70 mark on May 24. Thursday’s low-of-day price could become the next higher low within the pattern, in which case a higher high above the $148 level could take place over the coming trading days.
- The stock has resistance above at $129.50 and $145.22 and support below at $116.90 and $99.97.
