- GameStop stock surged as much as 47% on Thursday after it found technical support at its 50-day moving average.
- The stock had previously tumbled 34% following its first earnings report since a wild short-squeeze failed to impress investors.
- Here’s the technical outlook for GameStop stock as it continues to see heightened volatility.
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GameStop surged as much as 47% on Thursday as the stock found technical support from traders at its 50-day moving average.
But buyers of GameStop stock stepped in right 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 out price movements and help identify the direction of the current trend in place.
Traders often view the the 50-day moving average, which is the average daily closing price of a stock over its previous 50 trading sessions, as a short-term moving average that often represents areas of support or resistance for a stock.
If GameStop stock manages to decisively hold the 50-day moving average as support, then a rise back to its pre-earnings levels of around $175 could be in order. That would fill a technical gap created by its earnings decline, and would also coincide with a new eye-popping price target from Jefferies.
But a single trading day above its 50-day moving average is no sure-signal that GameStop stock will continue to trend higher, as declining momentum indicators like the Relative Strength Index suggest fewer buyers are stepping in to support the stock than in previous weeks and months.
Another moving average traders will likely have their eye on if GameStop falls below its 50-day is the longer-term 200-day moving average. The rising 200-day average is currently near the $39 level, representing potential downside of 71% from current levels.
But a stock’s decline below its 50-day moving average does not mean a swift decline back to its 200-day moving average is in order. One sign traders look for to generate a buy or sell signal is the crossover between the shorter 50-day and longer 200-day moving averages.
A buy signal is flashed when the short-term moving average crosses above the longer-term moving average, as happened for GameStop in September. Using this method, a sell signal for GameStop would not bet generated unless the 200-day moving average crossed above the 50-day moving average.