Jim Cramer told his Mad Money viewers Thursday night that there are many things that can make a stock rally. Thursday was a day when we saw hopes of more stimulus, a helpful Federal Reserve, and positive comments from Delta Air Lines (DAL) , to name a few. But there is another, more investable, reason to buy a stock -- shortages.
Cramer said, there are shortages of shares when short sellers get squeezed. Shares of video game retailer GameStop ( GME) have been heavily shorted for years as the industry moves online. But with an activist investor involved and strong demand for PlayStation 5 and Xbox, the shorts got crushed, sending shares up sharply the past week.
Let's check the charts and indicators.
In this daily Japanese candlestick chart of GME, below, we can see that prices based in the $5 area turned higher in late August. GME traded in a "normal" fashion for four months with rallies and pullbacks but in January prices exploded sharply higher and doubled in the blink of an eye.
Prices are above the rising 50-day moving average line and well above the rising 200-day moving average line. With the 200-day line around $9 and prices around $40 we can declare that prices are extended or overbought compared to this indicator.
The On-Balance-Volume (OBV) line has been strong since early August and the slow stochastic indicator tells us that prices are overbought. The upper shadows above $40 tell us that traders are beginning to reject these gains.
In this daily Point and Figure chart of GME, below, we can see that prices have exceeded the upside price target of $27.
Bottom line strategy: Right at this juncture in time, the charts of GME show more risk than reward. Stand aside.
