GameStop’s GME -6.4% 150% stock price rise last week is a “gotcha” jump. GameStop (GME) lacks the fundamental support to break through the $150 upside barrier in earnest. Its brief foray Thursday failed within minutes.
Why? Because, without fundamental support, the action is totally dependent on day traders watching one another’s actions, while examining the latest stock chart picture. And that’s where the $150 share price barrier gets its strength.
But GameStop was a standout in the stock market’s weakness
While a stock’s sudden strength in a dull stock market can be a positive sign, GameStop is in a different camp, having sold off significantly while the market was climbing. That means its reversal last week is simply a continuation of its negatively correlated pattern.
Therefore, when the market finishes its shakeout, as early as next week, expect all eyes to be back on the strong, fundamentally-driven leaders. This stock market is linked to company growth, and the outlook is positive.
GameStop, the company, could have a bright future, but the stock will likely weaken first
Two articles, “GameStop’s New Outlook” and “GameStop CFO Replacement Is Great News,” describe GameStop’s potential growth based on a repositioned company in a growth area. They also discuss how a new stock price foundation needs to form before long-term investors will be willing to buy and hold. So long as day traders randomly toss GameStop’s stock about, those investors will place their interest in the “to buy later if…” pile.
A word of warning: The media and others are supporting the false notion that the Reddit “mob” is in control. Actually, at the heart of wild, dramatic stock moves are savvy (and ruthless) traders. Moreover, you won’t see or hear comments from them unless it serves their interest. And that means those periodic revelations of so-and-so saying to watch out or jump in cannot be trusted. Nor can you trust a “friendly” Reddit suggestion. Just think back on those seemingly one-for-all and all-for-one cheers like “We’re all in this to beat Wall Street, so hold and buy more!” Following that instruction is the perfect route for being the last one holding the bag.
The bottom line: GameStop stock is a possible holding – for later
The best stock investing strategy now is to focus on fundamentally-driven growth stocks. They offer attractive return potential at reasonable risk.
GameStop is not in that category yet. There are hopes based on new board members and management changes. However, it is a significant challenge to both break out of the company’s fundamental decline and reposition itself on a new growth uptrend. As growth investors, we need to hear and see more planning steps and actions.
Because the changes will take time, the stock will likely end up in a lower-priced foundation, even as management’s new growth strategy is better understood.
