The video game market is zooming, but given the move to digital gaming in the cloud and reduced mall traffic, GameStop Corp. (GME) faces an earnings challenge when the company reports results after the closing bell on Wednesday, March 28. This report includes a significant portion of the company's 2017 holiday sales results. Following previously released guidance in mid-January, the share price did not benefit from decent projections.

The stock closed Tuesday, March 27, at $13.88, down 22.7% year to date and in bear market territory at 31.7% below its Jan. 11 high of $20.31. The bounce off its March 23 low of $13.49 is just 2.9%.

Analysts expect GameStop to post earnings per share  of $1.96 when it reports results on Wednesday. The key metrics to focus on are demand for new gaming consoles and major gaming software releases. A problem is that margins are slim for hardware. Sales of pre-owned games have larger margins, but these sales are sliding with the stock price. (See also: How to Game the Video Game Industry.)

The daily chart for GameStop

Daily technical chart showing the performance of GameStop Corp. (GME) stock
Courtesy of MetaStock Xenith

GameStop has been below a "death cross" since Oct. 7, 2016, when the stock closed at $26.68. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving and indicates that lower prices lie ahead, and this has been the case for shares of GameStop. This negative signal tracked the stock to its 2018 low of $13.49. The horizontal line at the top is my quarterly risky level of $19.04. The stock is between two lines – my weekly value level of $13.82 and my monthly pivot of $14.93.

[Find out more about recognizing patterns on stock charts in Chapter 5 of the Technical Analysis course on the Investopedia Academy]

The weekly chart for GameStop

Weekly technical chart showing the performance of GameStop Corp. (GME) stock
Courtesy of MetaStock Xenith

The weekly chart for GameStop is negative but oversold, with the stock below its five-week modified moving average of $15.38. The stock is well below its 200-week simple moving average of $30.55, which is the "reversion to the mean," last tested during the week of Nov. 27, 2015, when the average was $35.84. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 10.84 this week, down from 14.26 on March 23.

Given these charts and analysis, investors should buy GameStop shares on weakness to my weekly value level of $13.82 and reduce holdings on strength to my monthly and quarterly risky levels of $14.93 and $19.04, respectively. (For more, see: GameStop Stock: Turnaround or False Breakout?)