It’s been a year and a half since the GameStop (NYSE:GME) short squeeze frenzy. Whole books have been written to explain how the r/WallStreetBets crowd organized into an online army fighting for revenge against the hedge fund industry. And indeed, the army of retail investors did manage to push a couple of hedge funds into insolvency.
The stock is down ~75% from its January 2021 high of $483 a share. This means most small investors who followed Roaring Kitty into the trade are also deeply underwater. Unfortunately for them, lightning rarely strikes twice. Given GameStop‘s horrible fundamentals, we think most of them will never break even.
The good news is we’ve identified an apparent bullish Elliott Wave pattern on GME’s hourly chart. If the count below is correct, some temporary relief might be on the cards.
The chart focuses on the price developments over the past two months. We can easily spot a five-wave impulse pattern between $77.79 and $152.85, followed by a clear three-wave correction, labeled a-b-c down $113.30. In other words, a complete 5-3 wave cycle points north for GameStop. According to the theory, we can expect an upswing, whose initial targets lie above the top of the wave (1/A).
In addition, GameStop just announced a 4-for-1 stock split. In the era of Robinhood (NASDAQ:HOOD), this is a bullish catalyst, even though stock splits don’t change a company’s value at all. Cutting a pizza into 16 slices instead of 4 wouldn't make the pizza bigger. But in the markets, if enough people believe something, it is often enough to make it a reality, albeit only for a short while.
In conclusion, GameStop stock offers a bullish Elliott Wave setup with a catalyst. A surge to $160 or even higher seems likely from here. However, those hoping for a return to $400+ a share are likely to be disappointed.