Don't Chase GameStop At These Levels

Nov.16.13 | About: GameStop Corp. (GME)

By Neal Rau

GameStop Corp. (NYSE:GME) has been benefiting from the hype surrounding the upcoming PlayStation 4 and Xbox One console launches. The stock has jumped 48% in the last six months alone, as the stock continues to trade near the 52-week highs. Comparable-store sales at GameStop were down 10.7% last quarter, with much of the decline due to a 19% drop in new hardware sales, as customers have been waiting to buy the new consoles. Should investors buy shares of GME after such a big run?

GameStop expects to see a surge in sales from the highly anticipated launch of PS4 and XBOX, which are set for Nov 15 and Nov 22, respectively. In addition, the growing demand for the company's products will likely continue through the holidays. GameStop is scheduled to report earnings on November 21, before the market open, adding to catalysts in the near term. Based on the Stock Traders Daily GME real-time trading report, GME recently bounced of near-term support after a 5% pullback at the start of November.

GameStop is looking to hire 17,000 employees nationwide as the company prepares for the upcoming PlayStation 4 and Xbox One console launches, and the busy holiday shopping season. The positions GameStop is currently recruiting for include in-store Game Advisors, consumer electronic technicians within its refurbishment operation center and warehouse personnel within the company's two distribution centers.

Amazon.com, Inc. (NASDAQ:AMZN) will of course be competing with GameStop, and recently the online giant announced it sold out of both the Microsoft Corporation (NASDAQ:MSFT) Xbox One and the Sony Corporation (ADR) (NYSE:SNE) PlayStation 4. It might actually be good news for GameStop, as some stores still have inventory, which will bring more customers into the stores. GameStop also offers used games and consoles that consumers could be looking to replace. During the launch period, the company is offering Xbox 360 and PlayStation 3 deals to try to increase the user base for used games.

Many analysts believe that the PS4 launch will be significantly larger than the last cycle. Estimates suggest the PS4 selling 3.1 million units, or 85% more globally during the December quarter than the PS3's launch in the December 2006 quarter. As for the Xbox One, they expect it to sell 3 million units, or 100% more units globally this quarter versus the Xbox 360's launch in the December 2005 quarter.

Shares are up almost 50% over the past six months, and smart money will be watching the price. The stock is trading near the 52-week highs after bouncing off near-term support recently. Currently the stock is sitting in the middle of a channel according to our real time trading report for GME, so it does not look attractive as a buy right here.

By definition we prefer to buy near support levels when they are tested because that allows us to maximize our return, our target is resistance and we want to get the complete oscillation from support to resistance, but it also helps us control risk, and that is the most important part. With so much news already out, and high anticipation with the new hardware launches, a "sell the news" pullback might offer an opportunity to buy near support, as shown in our GME real-time trading report.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.