GameStop Corp., once the larger video game retailer, has been losing ground in recent years. The switch to e-commerce and direct-to-consumer trends led to a steady decline in GameStop’s sales. The intruduction of cloud-gaming is only adding to the company’s problems. On that backdrop, it is not surprising that the stock has been in a multi-year downtrend, as well.
But the general post-March surge took GameStop up with it. The share price is up 512% since early April, climbing from as low as $2.58 to close at $15.80 yesterday. On the last day of November, the stock even touched an intraday high of $19.42. Does this recent strength mean it is now safe for investors to jump in? We have our doubts, based on the Elliott Wave chart below.
The 4-hour chart reveals that GameStop’s impressive recovery is a five-wave impulse. The pattern is labeled 1-2-3-4-5 and, according to the theory, suggests a three-wave correction can now be expected. Corrections usually erase the entire fifth wave. In GME’s case, this translates into a drop back down to single digits.
In addition to the above-shown pattern, there is also a bearish RSI divergence between waves 3 and 5. If the analysis so far is correct, GameStop can fall ~40% or more from the current price level. In our opinion, investors should be able to find better deals elsewhere.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
