VictorCobra

A Game Well Played (GME)

Short
NYSE:GME   GAMESTOP CORPORATION
Yes, I actually presented the possibility of a massive short squeeze to all-time high levels for GME stock back in October. Here is the original analysis:
There were clearly some opportunistic investors who bought the lows on this one and made out like bandits. Unfortunately I wasn't one of them (I made the initial post by request). Even those who bought below $5 and sold at $30 did very well. The idea was that GME might actually be undervalued. Even Michael Burry ('Big Short' fame) had invested in the company. Time will tell if Gamestop can restructure in such a way that proves profitable and time-enduring. But clearly, this stock is a fan-favorite. The Millennials involved in the short squeeze certainly have an affinity for nostalgia. Just look at Nokia and AMC (remember when we could go to movie theaters?)

Many on WSB are now wondering what's going on, clearly. The herd-mentality is quite extraordinary, and together a large group of smaller investors was able to squeeze whales out of their positions. Unfortunately, the wealthy elite are the ones with the liquidity and access to massive amounts of borrowing. In numbers, when people collaborate they can certainly have an impact , and it's inspiring to see that happen here. HOWEVER, human nature always takes over, and people get both fearful and greedy. These emotions drive the markets. Big investors have the wealth to afford short term losses. In their mind, the market always goes up long term, so they will be able to recover their losses. But the wealth disparity is so great that when an individual risks their life savings on something like this, it will take a very long time to recover. So the fear is correspondingly much greater, and that fear makes the stock owner a paper hand. To really have "diamond hands" you need to be able to stomach losses of 50% or greater. Those who bought GME above $300 (I suspect there are a lot of them) are already down to less than a third of their original investment.

The name of the game is always liquidity. Unfortunately, after Robinhood restricted orders, buying pressure eased up, allowing prices to fall. Charts were going around displaying "low volume sells," but that's not the entire picture. In reality, it's the lack of buyers. Even though there aren't that many people selling necessarily, price can still drop if there are even less buyers to eat up the supply from the sellers. So price has dropped right back to where I'd expect it would - roughly near the previous all-time-high . Psychologically, the $65-75 range should be a moment of maximum pain for anyone who bought during the meteoric rise. And therefore, their panic-selling should provide the most liquidity for new buyers. If GME is to actually move up again, I expected these levels to be tested. This is the first time I see a potential buying opportunity. If GME falls below $65, it can head right back to my trendlines and much lower support levels. This is the risk. If one believes in this company's value long-term, these are the levels to look for entries. And yes, it can go all the way back to $15-17 and still remain in an uptrend!

Here it is zoomed in, so you can see my trendlines more easily. The green horizontal line is the previous ATH
There is still a chance for further squeeze action (yes, even towards those ridiculous $1000+ targets), but GME will need to hold above my trendlines , and ideally above the previous ATH . Ultimately though, once the final squeeze is done (if there is one ) I expect the stock's price to fall back to earth and land somewhere in the $10-20 range. We'll see! I am not personally buying GME unless it gets back into that range and shows some promising business moves. But the $65-75 range is where I'd look for the first line of strong support, if I were trading this (previous ATH ). Right now I'm looking to begin investing for the long term after building some capital using crypto market gains. Currently, I'm building small positions in stocks/ETF's that I think have room to grow, despite very precarious economic conditions. I do think we're nearing some sort of climax to a large debt/asset bubble. I'm very curious to see what happens in the next few years. Perhaps sectors other than big tech (green energy, new infrastructure, marijuana, nuclear, etc) can take the reigns and we can avoid a serious economic collapse. It all depend on the world's leadership, and what they do about the wealth gap.

I see a lot of people my age investing and trading for the first time. So in some ways, I am at an advantage with respect to my cohort, since I have a pretty good idea of how the markets work. It's important to have a PLAN, and many entered this frenzy without one . Some will become long-term investors, but many will lose enough money to impact them for the rest of their lives.

Part of this IS general investing advice, but this post is NOT a recommendation to buy or sell any particular stock. This is for speculation and education only. All I can say is be very careful, assess risk, and TAKE PROFIT. Profit and capital preservation is your POWER against fear. FEAR makes one a paper hand. And I acknowledge many around the world do not have the wealth or financial safety net to handle losses. To many, the market offers opportunities for those who don't come from privilege. But especially in those cases, it's immensely important to exercise RISK MANAGEMENT. Take that profit, enjoy it, and carefully plan the next move when you are ready.

-Victor Cobra
Comment: AMC analysis, by request:
Comment: A reason why price likely bounced from near the previous ATH is because that's where the most liquidity for buyers exists now. In order for shorts to close, they want to get the lowest possible price to buy back their shares, even if it's still at a loss. Buying at $80 is way better than buying at $300. If that's the best they can get, more can be squeezed out of them if price bumps back up towards $200 and above. But there may be less fuel for a further short squeeze. All speculation, of course.
Comment: $65 level tested. Now let's see if there's fuel for one more push up! If that level fails to hold on the weekly, that wouldn't look very good.
Comment: Welp....RIP. If buyers can't push this back up above $65 soon, I think this one is probably done. Insane how small a window there was to sell above $300.
Comment: Looks like buyers have stepped in below the $65 level. This is likely where many had their stop loss, which provided some nice selling liquidity for shorts to close in the $50-60 range. This could be part of the reason for this strong bounce. Buyers will have to continue defending that 65 level through weekly close though.
Comment: Failure to hold above $65 last week has sent prices lower to start the week. There is some trendline support around the $44-45 level, but that's it. If that breaks, it can head right back to $30 and then $12. Even $12 is substantially up from last year.
Comment: Came very close to my trendline! If it can hold above for a number of weeks, perhaps GME will have finally reversed back to the upside, for the long term. But as mentioned above, if it falls below the trendline and sustains, it can head back to much lower levels. The report yesterday told us that it is still heavily shorted, but I do expect a lot of resistance overhead from people who bought at higher levels.
Comment: Last line of defense here for GME. If it can't hold my light blue trendline, it can fall to $30 and then $15.
Comment: Amazingly, it's just barely holding onto my trendline. The risky longs down there are doing quite well now. Let's see how high the relief rally can go. If it holds above my trendline, there is a possibility GME will begin a new longer term uptrend. It will need to keep making higher lows.

Comments

Crazy day today, what do you make of it? Will it hold, spike or sink?
+1 Reply
VictorCobra StocksandTradeViewer
@StocksandTradeViewer, I honestly can't say how high it can go short-term (this analysis is mostly technical), but as I posted in my most recent update when it was still at $50 - it bounced from the long term uptrend, so as long as it keeps making higher lows, it could be a decent long term play. It also broke above $65 again, which was the old all-time-high. That would have been the buy signal if I had been trading this. Those are the areas to watch: the $65 level and the long term uptrend (light blue on my chart).

-Victor Cobra
Reply
Hey Cobra! Amazing analysis, wish I had discovered your posts last year. Any updates for 2/12 or 2/13 ? Thanks!
+1 Reply
VictorCobra Dr_U_Faust
@Dr_U_Faust, Thank you! Not much to say, aside from the fact that it should ideally continue holding above my trendline if it's going to become a decent longer term play. A break below that $45 level could send it much lower. So just waiting to update until I see support held for longer, a bounce above $65, or a breakdown from support.

-Victor Cobra
+1 Reply
GME is the modern Blockbuster-LLC. Their business model is obsolete. Whether you like it or not. There is a reason hedge-funds shorted this company so much. You should think of hedge funds as predators that take care of the natural selection in the markets. I know a lot of ppl. are emotionally invested in this whole story and that's where the problem lies. 60$ is still insanely overvalued. The price should be nowhere above the 10$ mark. Even before the pandemic hit us and their stores were opened their business was going downhill. The PS6 will probably not even support discs anymore. No PC disc support. It's like a floppy disk... Out of all the stocks that are unreasonably over shorted, to me it seems like ppl. decided to go all-in on the one where it's the most reasonable that it's heavily shorted by those hedge funds.
+1 Reply
VictorCobra TEX-ANALYTICS
@TEX-ANALYTICS, I tend to agree. They closed major stores in NYC recently, which usually isn't a great sign. Unless they plan to go mostly virtual. I think once the pandemic eases, they have an opportunity to hold more events that could bring people to their stores. People will be starving for social interaction. But that's it for bullish possibilities, I think.

-Victor Cobra
Reply
doitjp-pan TEX-ANALYTICS
@TEX-ANALYTICS, In general, I agree with you. There is no doubt that everything suggests that digital will be the future. However, there is one thing which I would like to highlight. Let’s take Playstation as an example. This is the very first time in which Sony has released 2 versions of its console, one with disks and one without. So you can argue that right now we are in a transition period from moving the physical disk to digital downloads. In other words Sony thinks physical disks still have their relevance. Over time, Sony will take the data from the two different models sold and then decide whether or not they will release PS6 without an optical drive. I think it's too early to make a conclusion here. Until The next Gen is released it would probably take 5 years. So there is plenty of time for GME to turn things around.

Playstation life cycles:

Playstation 2 release: Mar 2000 (~7 years)
Playstation 3 release: Nov 2006 (8 years)
Playstation 4 release: Nov 2013 (7 years)
Playstation 5 release: Nov 2020 (expected life cycle 5 years)
Reply
You are doing a great work
+1 Reply
hi Victor

What do you think of AMC? could you do an analysis for it?
+1 Reply
@Patl66, Sure, I can do an analysis for AMC.

-Victor Cobra
Reply
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