GameStop (GME) Crashes, Indices Rally

What goes up, must come down. For shares of GameStop (GME) stock, truer words may have never been spoken. After posting a euphoric high of $483.00 last week, prices are plunging. At press time (about 12:45 PM EST), shares of GME are off nearly 50% on the day, trading in the neighborhood of $120.00. Conversely, the U.S. indices are performing well. At the half-point of the session, DJIA DOW (+574), S&P 500 SPX (+65), NASDAQ (+222) are all deep into the green.

Aside from the chaotic action in GME, there were a few peripheral U.S. economic metrics released this morning. Here are the highlights:

Event                                                                   Actual                  Previous

ISM New York Index (Jan.)                                   51.2                      61.3

IBD/TIPP Economic Optimism (Feb.)                 51.9                     50.1

Redbook YoY (Jan. 30)                                          4.4%                     3.9%

It seems like a theme lately, but today has brought another mixed collection of metrics. In short, optimism is up and business conditions are down. The ISM New York Business Conditions Index (Jan.) shows a massive month-over-month decline of more than ten points. So, what does this mean? The drop suggests that the continued COVID-19 restrictions in New York are smashing sentiment. After about a year of extreme strife, one has to wonder if the Big Apple will ever fully recover. 

On the regulation front, the GameStop situation continues to pose major questions to the financial world. Hedge fund shorting, retail trading platforms, and even social media communications have all been under fire from lawmakers. The latest fallout has been stock trading platform RobinHood postponing their IPO until later in the year. RobinHood has been a much-maligned gamechanger of traditional finance ― will the GME debacle lead to extreme Biden-era trading regulations? As of now, it looks like the institution of various new rules is inevitable.

GameStop Stock Crashes, Holds Just Above $100.00

The GameStop saga has been the lead financial story for the past week. Currently, the lofty gains are gone, with the stock plunging from north of $400 to $100 in only a few days.

Bottom Line: Right now, no one knows what GME is worth. And, euphoric rallies typically end up where they start. If we see GameStop continue to crash, I’ll be looking to buy in from beneath the Daily SMA.

For the rest of the week, I’ll have buy orders queued up in GME from $20.55. With an initial stop loss at $14.45, this trade produces $7.50 per share on a slightly-better-than-1:1 risk vs reward ratio.

ABOUT THE AUTHOR See More

Shain Vernier

US Analyst

Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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