In recent news, it was published during the trading session on October 20th, it highlighted GameStop’s approach to oversold territory. At that time, GameStop (GME) had recorded an RSI of 31.3. Typically, when a stock’s RSI falls below 30, it’s considered “oversold.”

As GameStop’s share price plummeted to levels very close to $13 per share, it is now officially in oversold territory. But what does this actually mean?

When a stock enters oversold territory, it usually suggests that its price has experienced a significant decline and may be due for an upward reversal, often attributed to seller exhaustion. This situation can present appealing entry points for investors and traders seeking to establish or expand their positions.

In GameStop’s case, the stock has entered oversold territory only a few times this year: in early January, mid-August, and early October. On each of these occasions, GameStop’s shares experienced short-term bullish movements shortly afterward. As an example, in January, the stock price increased from $16 to $21, in August, it advanced from $16 to $19, and in early October, it moved from $14 to $16.

Money Flow Index Suggests GameStop Is Not Yet Oversold

While GameStop’s stock is technically considered oversold based on the Relative Strength Index (RSI), it’s crucial to note that the company hasn’t reached oversold territory according to the Money Flow Index (MFI). The MFI combines aspects of the RSI with trading volumes to evaluate buying and selling pressures affecting a financial asset.

Typically, MFI values above 80 indicate overbought conditions, while values below 20 suggest oversold conditions. Recently, GameStop’s MFI was at 41, suggesting a rather neutral status. However, on the 18th during the trading session, GameStop’s MFI hit its lowest point since August, registering at 25.

Further decline could potentially push GameStop’s MFI below 20, placing it in the “oversold” category according to both RSI and MFI indicators.

GameStop Appears Poised for a Reversal

In the week from October 16th to October 20th, GameStop’s shares experienced a notable decline of nearly 9%. This significant drop placed GameStop in an unusual oversold position. In the last three years, GameStop’s RSI has signaled oversold conditions on just three occasions.

In recent history, whenever GameStop entered this oversold territory, it witnessed a price reversal, though the extent of these reversals varied. However, it’s essential to note that there aren’t any significant catalysts on the horizon that could trigger a surge in buying pressure. 

Consequently, a turnaround in this scenario might require several trading sessions to unfold, or it might not happen until the Money Flow Index (MFI) also confirms an oversold condition.

In summary, the current situation could be perceived as a favorable entry point for those considering purchasing GameStop at a local low. Nonetheless, it is vital to exercise prudence and carefully track market trends to ensure well-informed investment choices.