GameStop Corp. (GME) shares rose more than 10% during Monday's session amid bullish reports on video game sales and a pair of analyst upgrades.

Key Takeaways

  • GameStop shares moved sharply higher following a pair of analyst upgrades and a bullish report on the wider video game industry.
  • NPD Group said that sales rose 37% year over year in August, driven by the COVID-19 pandemic, which has kept many consumers at home.
  • GameStop stock experienced a bullish crossover earlier this month and rebounded from key support levels during Monday's session.

Jefferies upgraded GameStop stock to Buy with a price target of $8.00 per share, citing an asymmetric reward potential in the near term. Analyst Stephanie Wissink believes that new console launches will lead to new hardware sales, trade-in inventory, and high-margin pre-owned sales, along with sales of peripherals and accessories. In addition to Jefferies, Telsey Advisory Group upgraded GameStop to Outperform with a $10.00 price target.

Tip

Asymmetric information, also known as "information failure," occurs when one party to an economic transaction possesses greater material knowledge than the other party.

The analyst upgrades come as NPD Group reported a 37% year-over-year increase in video game sales to $3.33 billion in August. With the COVID-19 pandemic keeping many at home, video games have become a go-to for consumer entertainment. In addition to GameStop, shares of Turtle Beach Corporation (HEAR), an accessories maker, and Activision Blizzard, Inc. (ATVI), a game developer, have risen following the bullish report.

Chart showing the share price performance of GameStop Corp. (GME)
TradingView.com

From a technical standpoint, GameStop stock rebounded from trendline support toward prior highs of around $8.00 over the coming years. The relative strength index (RSI) remains at neutral levels of 59.60, but the moving average convergence divergence (MACD) experienced a bearish crossover. These indicators are sending mixed messages, with trendlines showing a different picture than the MACD indicator, which is trending bearish.

Traders should watch for an ongoing rebound from trendline support to retest highs of around $8.00 over the coming sessions. If the stock breaks out further, it could move toward trendline resistance at $8.25 over the coming sessions. If the stock moves lower, it could retest trendline support at $6.00, while a breakdown from those levels could lead to a move toward the 50-day moving average at $4.95 over the coming sessions.

The Bottom Line

GameStop shares moved sharply higher after a pair of analyst upgrades and a bullish industry report. From a technical standpoint, the stock rebounded from support levels toward its prior highs, but the MACD still paints a bearish picture for the intermediate term.

The author holds no position in the stock(s) mentioned except through passively managed index funds.