GameStop Rally Ends After Seven Days as Traders Take Profits
GameStop (GME) broke a seven-day winning streak today, closing about 2% lower after the stock trimmed its gains from earlier in the session. The move comes amid a selloff in technology stocks led by chip makers. Investors started to sell after Bloomberg reported the Biden administration is considering more trade restrictions against China unless companies stop providing access to U.S. chip technology.
Improved odds for a Donald Trump presidency following last week’s assassination attempt are also weighing on risk-sensitive assets as the threat of an increasingly hawkish U.S. stance against China comes to fruition. Investors didn’t shy away from GameStop until the last hour of trading.
GME CEO Ryan Cohen endorsed Trump over the weekend on X, formerly Twitter. He tweeted “Trump 2024” with an American flag emoji. The tweet came after the failed assassination attempt on Trump. The endorsement comes alongside those of other high-profile business leaders, including Tesla (TSLA) CEO Elon Musk and Bill Ackman, CEO of Pershing Square Holdings (PSHZF).
GME saw wild price swings in May and June after Keith Gill, aka Roaring Kitty, posted a meme on X in early May. The stock sold off after Gill’s June 7 livestream and prices remain about 25% lower from then. During the livestream, Gill said part of his investment thesis on the stock was a bet on management, even though we don’t know Cohen’s plans for the company. Gill provided an update on his trade on June 13, showing 9,001,000 shares of GME at a price basis of $23.4135.
We don’t know if Gill is still holding that position, but traders speculated he may have dumped it to finance his trade into Chewy (CHWY).
According to Nasdaq.com, insiders have bought 41,940 shares of GME over the past three months and sold 24,647 shares. The latest purchase came from Cheng Lawrence on July 8 for 4,140 shares, bringing his total to nearly 70,000 shares held.
GameStop options offer plenty of premium, with the Aug. 16 expiration showing an implied move of +/- 8.49 points, or about 30% of the current stock price.
Today’s move may reflect some profit-taking following the seven-day rally. That could signal a turnaround for the positive momentum in the stock. Technically, GME may retrace to its nine-day exponential moving average (EMA), which it has traded above since July 9.
Traders started to sell GME as it approached 30. A lot of open interest is there on the call side for the Aug. 16 expiration. That could mean long call holders decided to take profit on those options today.
That said, GME still holds a lot of call skew, so if a trader wants to short via options, it is cheaper to speculate to the downside. For traders who believe today’s selling will continue, buying a put could pay off if that view materializes.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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