GameStop (NYSE:GME) stock has slumped to its lowest in over two years, continuing a downward trend that started in April when it was trading at $26.90. It has dropped to $17.87, with focus on its upcoming earnings report on Tuesday this week.
GameStop to Publish its Earnings as its Stock Dives
GameStop stock has slumped over the past few months as investors weigh the implications of its bid to acquire eBay (NASDAQ:EBAY). The company launched a long-shot buyout offer and began accumulating shares in its target.
The challenge, however, is that eBay dwarfs GameStop in size, and Ryan Cohen has yet to lay out a clear plan for funding the deal. According to Bloomberg, GameStop is planning to scrap the deal.
The most recent results showed that GameStop’s revenue jumped to $835 million in the March quarter from $732 million in the same period last year. Its net income soared to $389 million, helped by an unrealized gain of $268 million on a put/call option linked to eBay shares.
Analysts expect this week’s revenue to show that its revenue dropped by 22.15% in the last quarter to $756 million. Its business is facing major challenges, including the challenges in the console market. This challenge has been offset by an improvement in its collectibles market, which includes trading cards, apparels, and pop culture merchandise.
The options market points to a soft movement after earnings this week. Options expiring on Friday have an implied volatility of 38%, lower than its historical volatility of 40%. Most of the calls are concentrated at $20, with most puts at $18.
GameStop Stock is at Risk of More Downside
The weekly chart shows that the GME stock has pulled back, and most recently, it dropped below the important support of $17.87. This support was the lower side of the descending triangle pattern, which often leads to further downside over time.
The stock has dropped below the 50-week moving average, while the Relative Strength Index is hovering near the oversold level of 30. Also, the two lines of the Percentage Price Oscillator (PPO) have continued falling.
Therefore, the stock will likely continue falling, potentially to the key support level of $15. A move above the key resistance level of $20 will invalidate the bearish outlook.
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