Does the GameStop stock price decline signal an end to the GME saga?

Summary:

The Gamestop stock price has halved since June. Furthermore, GME has nowhere near the short interest it previously had, which may prove the bulls undoing.

The Gamestop stock price has halved since June. Furthermore, GME has nowhere near the short interest it previously had, which may prove the bulls undoing.

GameStop Corp (NYSE: GME) has traded sideways for six months. Granted the sideways channel is $220 wide but sideways it is.

However, on Friday, GME closed at $161.12 (-2.27%) on the key support of the lower end of the channel.

Furthermore, GameStop stock fell for four straight days last week, and if that weakness continues, GME may soon break down. But as with all meme-stocks, technical analysis alone is not enough. The real question is will GME encounter another short-squeeze?

GME technical outlook

Firstly, the short-interest has dropped considerably. Now, only 13% of the available 62,220,000 shares are lent to short-sellers. Although relatively high, during January’s squeeze, more than 100% of the available stock was short.

Furthermore, the most recent data indicates, the days to cover has fallen to 1.3. Again, far short of the previous 6 days, in January.

This suggests that the GameStop stock price may not encounter a material squeeze sometime soon. In my opinion, for that to happen, either the price or the short interest has to increase. Presently, neither look probable.

The daily chart shows GME is testing horizontal support at $160. Should this level give way, a 25% drop to the 200-day moving average at $120.16 is possible.

However, technically speaking, a return to February’s $38.50 low cannot be discounted. Although, this bearish view is dependent on the stock closing below $160. Furthermore, if GME climb’s above the 50 DMA at $209.24, the technical outlook becomes bullish.

Although I believe the downside scenario plays out, historically, selling GME has been perilous. Most investors are not suited to trading stocks with such high volatility. Therefore in my view, GameStop should be left to those who are prepared for significant losses.