AMC Entertainment falls 14% as increasing short bets test a key technical support level

AMC Entertainment
  • AMC Entertainment fell as much as 14% on Wednesday as the meme-stock frenzy begins to cool down.
  • The stock is testing a key support level at its 50-day moving average in Wednesday trades.
  • Short bets against the movie theater chain increased 6% over the past week, according to S3 Partners.
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Shares of AMC Entertainment dropped as much as 14% on Wednesday as retail traders begin to capitulate on the meme-stock frenzy and short bets against the theater chain increase.

The stock tested a key support level on Wednesday, as it traded around its 50-day moving average at $37.28. At time of publication, AMC was trading below the key support level at $35.27.

Moving averages are a lagging trend-following indicator that technical analysts use to smooth out price movements and help identify the direction of the current trend in place.

Traders view the the 50-day moving average, which is the average daily closing price of a stock over its previous 50 trading sessions, as a short-term moving average that often represents areas of support or resistance for a stock.

If AMC manages to decisively hold the 50-day moving average as support, then a rise back to its June peak of about $70 could be in order.

But a single trading day above its 50-day moving average is no sure-signal that AMC stock will continue to trend higher, as declining momentum indicators like the Relative Strength Index suggest fewer buyers are stepping in to support the stock than in previous weeks and months.

Another moving average traders will likely have their eye on if AMC falls below its 50-day is the longer-term 200-day moving average. The rising 200-day average is currently near the $14 level, representing potential downside of 60% from current levels.

But a stock’s decline below its 50-day moving average does not mean a swift decline back to its 200-day moving average is in order. One sign traders look for to generate a buy or sell signal is the crossover between the shorter 50-day and longer 200-day moving averages.

A buy signal is flashed when the short-term moving average crosses above the longer-term moving average, as happened for AMC in February. Using this method, a sell signal for AMC would not be generated unless the 200-day moving average crossed above the 50-day moving average.

As AMC tests its key 50-day moving average support level, short bets against the company are increasing, according to data from S3 partners. Over the past week, short bets increased 6% to 5 million shares, worth nearly $200 million.

While AMC short-sellers are down more than $3 billion in 2021 on a mark-to-market basis, that could soon reverse if AMC breaks below its 50-day moving average and trends towards its 200-day moving average.

Technical analysis chart of AMC
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Meme-stock purchases by day traders dropped 28% last week with investors ‘falling out of love’ with those shares, new data shows

Reddit WallStreetBets WSB
  • Purchases of meme stocks by retail investors dropped 30% – to $360 million from $500 million – last week, according to research firm Vanda.
  • Buying in meme stocks such as GameStop and AMC has fallen from a weekly peak of more than $900 million in June.
  • Virgin Galactic bucked the trend, however, ahead of the company’s planned space flight on Sunday.
  • See more stories on Insider’s business page.

Purchases of so-called meme stocks by retail investors dropped sharply last week, with Vanda Research saying the decline highlights that investors are “falling out of love” with that segment of the equity market after their spectacular rallies.

Meme-stock purchases slumped to $360 million, down from $500 million and marking a 28% drop, the research firm said in an update published Wednesday. The firm that stock prices have caught up with weaker demand.

“In most speculative trades, a few unsuccessful attempts to buy dips are followed by a rush to the exit,” wrote Giacomo Pierantoni, a research analyst at Vanda whose VandaTrack arm monitors activity in 9,000 individual stocks and ETFs in the US.

Overall weekly purchases of meme stocks, which include GameStop and AMC Entertainment, have fallen from a peak of $963 million that was notched on June 8.

GameStop, AMC, Bed Bath & Beyond and other companies still hold hefty price gains for 2021 that have been propelled by retail investors working to make money by forcing short squeezes on hedge funds that are seeking to profit from a drop in those share prices. But many of those stocks have come off their highs. AMC traded around $46 on Thursday, down from its peak above $72 on June 2.

But Vanda noted that one of the speculative baskets it monitors logged a significant increase in retail buying this week:

“Space. Retail investors have been eager to buy dips on Virgin Galactic, likely in anticipation of the next test flight on July 11th, when Richard Branson will be joining a crew of five astronauts,” said Pierantoni.

Virgin Galactic shares soared by as much as 17% ahead of Branson’s scheduled space plane flight on Sunday.

In a separate gauge of consumer interests, Bespoke Investment Group said results of its tracking on Google Trends of the term”meme stocks” suggests that interest has collapsed.

“That also applies to the individual ticker symbol of the stock that kicked off the meme stock mania: “GameStop,” and searches for AMC have fallen considerably, it said in a Thursday note.

Read more: Morningstar’s strategists say these 10 travel stocks are the best placed to soar from pent-up demand as COVID-19 restrictions lift – including 4 picks that look especially cheap

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AMC jumps 10% as the Reddit favorite reports the most customers in a weekend since reopening

Vin Diesel driving a car in "Fast and Furious 9."
Vin Diesel in “Fast and Furious 9.”

  • AMC Entertainment jumped as much as 10% on Monday after it reported strong traffic at its theaters over the weekend.
  • The company said more than 2 million customers visited its movie theaters over the weekend.
  • The new ‘Fast and Furious’ movie installment helped drive a post-pandemic box office record.
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Meme stock and Reddit favorite AMC Entertainment soared on Monday, surging as much as 10% following a strong weekend at the movies.

Driven by hot weather and the opening of “Fast and Furious 9,” AMC saw more than 2 million guests visit its theaters over the weekend, representing a post-pandemic record for the company.

“Fast and Furious 9” also broke records, with the movie generating $70 million in ticket sales over the weekend. That’s the biggest opening weekend for a movie since 2019’s Star Wars: The Rise of Skywalker.

According to AMC, six of its movie theater locations represented the top 10 busiest theaters in the US. And an additional 500,000 people visited AMC’s international locations over the weekend, according to the company.

“The combination of widespread vaccination and the release once again of blockbuster movies is proving to be the magic formula for the return of moviegoing,” AMC CEO Adam Aron said.

Shares of AMC are up more than 2,600% year-to-date and have cost short-sellers billions in losses.

Despite the near-record stock price and an improving outlook for movie ticket sales, some investors remain unconvinced that AMC is worth its current market valuation of nearly $30 billion. Short interest as a percentage of AMC’s entire share float still stands at just below 20%, according to data from ShortSqueeze.

AMC Entertainment stock chart
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AMC rises as S&P upgrades the Reddit favorite, citing a path to sustainability for the theater operator

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC shares rose as much as 8% early Friday after S&P Global Ratings raised the company’s credit rating.
  • The credit rating was upgraded to CCC+ from CCC- but leaves the rating still within a speculative grade.
  • Fundraising by AMC and prospects for more people buying movie tickets helps improves AMC’s financial picture.
  • See more stories on Insider’s business page.

AMC shares climbed Friday, bolstered by an upgrade of its credit rating at S&P Global Ratings which said fundraising by the company should help put the movie-theater chain on steadier financial footing.

Shares of AMC gained 6.3% to $45.51 in premarket trade and rose as much as 8%. The company’s rating was lifted to CCC+ from CCC-, a move that still keeps the rating within the high-risk, or so-called junk bonds, category. Key to the improvement was AMC’s raising of $1.8 billion in total equity this year, including $818 million in proceeds last week.

“If the company uses the majority of these proceeds for debt reduction and refinances the expensive debt raised during the pandemic, it will materially reduce its interest burden, cash burn, and leverage,” said Scott Zari, a credit analyst at S&P Global Ratings, in a statement released Thursday. “This, coupled with our expectation that theater attendance will likely significantly improve in the second half of 2021, provides a path to a sustainable capital structure.”

AMC has cashed in on its status as a meme stock, with its share price zipping higher in recent weeks as numerous retail investors from social media sites such as Reddit’s WallStreetBets pour millions of dollars into its shares and band together to profit off short squeezes they create against hedge funds betting that the share price will fall. The stock has a 21% short interest rate, according to MarketBeat data.

S&P Global said AMC had a monthly cash burn of $120 million in the first quarter of this year. It now sees the company as having sufficient liquidity to maintain its operations while attendance at its movie theaters grows. S&P Global foresees the US box office begin the third quarter at about 50% to 75% of 2019 levels then in the fourth quarter peak at 80% to 90% compared with the same period. Attendance, however, is unlikely to reach pre-pandemic levels on an annual basis until 2023, it said.

S&P Global has a positive outlook on AMC’s credit, indicating it may raise the rating further if the company prioritizes reducing its heavy debt and interest burden.

Among AMC’s fundraising efforts, last week it made $230.5 million by selling new stock to Mudrick Capital Management at a premium. The investment firm later dumped the acquired shares and called them overvalued, according to a Bloomberg report.

Meanwhile, six AMC executives made more than $8 million last week after selling shares of the company during a massive rally, according to filings with the Securities and Exchange Commission.

Renewed interest in AMC’s stock was ignited in late May after its largest shareholder, private Chinese conglomerate Dalian Wanda Group, sold almost all of its remaining stake. Retail traders used that opportunity to buy more into the stock.

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Leverage ‘can rip your arms off,’ former TD Ameritrade boss says in warning to meme-stock retail traders

Joe Moglia
Joe Moglia, former CEO of TD Ameritrade and current chair of FG New America Acquisition.

  • “Leverage on the way up is a great thing. Leverage on the way down can rip your arms off,” former TD Ameritrade CEO Joe Moglia tells retail traders in meme-stocks in a CNBC interview.
  • Brokerage firms and financial houses dealing with retail investors must be better at educating their clients about the risks of leverage or using loans from brokers to buy stocks.
  • Moglia on Thursday addressed retail investors as AMC shares have rallied sharply in the last two weeks.
  • See more stories on Insider’s business page.

Using leverage, or borrowing money to buy stocks, can pay off for retail investors participating in the explosive rallies in AMC Entertainment, GameStop and other so-called meme stocks but they need to be aware that those trades can quickly turn and burn them financially, the ex-head of TD Ameritrade said in a CNBC interview on Thursday.

“My biggest concern is what’s going on with the individual investor … and that they’ve got to be able to understand when they use leverage what that really means,” Joe Moglia, a former CEO and chairman of the online discount brokerage, told CNBC’s “Squawk Box”.

In using leverage, or margin trading, investors borrow cash from their brokerage companies to buy stocks and pledge securities in their accounts as collateral. Margin trading increases buying power and expands profits.

“Leverage on the way up is a great thing. Leverage on the way down can rip your arms off,” Moglia said, referring to losses that can hit investors when a stock price falls. He said investing platforms and other market professionals need to improve upon educating individual investors who day trade about the risks they face from market declines and how to handle them.

“A quick example: if you bought AMC at $10, and it goes to $20, is that not enough of a profit? It goes to $30, it goes to $40. At what time do you start to trim that position or, in effect, get rid of the position altogether? There are things that we’ve got to do a better job of with day traders,” said Moglia, who is the current chair of FG New America, a blank-check company, or SPAC, that targets opportunities in the fintech industry.

Moglia spoke as retail investors have launched AMC’s price up by more than 500% since late May in defending the movie-theater chain’s shares against hedge funds selling the stock short. The rally is reminiscent of the January boom in GameStop’s price as retail investors battled hedge funds betting against the video-game retailer’s stock. GameStop shares eventually retreated sharply from an all-time high of $483 apiece.

Investors can be vulnerable when the value of the stocks they’ve purchased drops significantly. Those declines can trigger margin calls, or demands by brokers for clients to repay some of the money they borrowed. Brokers can liquidate a client’s assets to cover the debt if they fail to meet a margin call.

Retail investors have lately overpowered short-sellers betting against AMC. Short-sellers lost nearly $3 billion on Wednesday alone as AMC’s share price more than doubled, according to data from analytics firm Ortex.

“What we’ve got to be conscious of is, at some point, the market is going to turn around. The technicals are going to wear out and [retail investors have] got to be prepared for a down move in that. But so far, I think they’ve pry made a little bit of money,” Moglia said.

Investors this year are borrowing all-time high amounts against their portfolios, with margin debt reaching $847 billion at the end of April, according to data from brokerage industry regulator FINRA.

Retail trading volumes, meanwhile, have been climbing on the back of growth in commission-free brokerage accounts and user-friendly trading apps and as millions of Americans forced to stay home because of COVID-19 turned to the stock market to make money.

Moglia said retail day traders overall should learn more about long-term investing strategies which can enhance discipline.

“If they love what they’re doing and they get burned a bit, that shouldn’t send them away from the market although I recognize that’s a risk. That should tell them they need a better education, a better understanding that day-trading alone is not going to be good enough to ride out the ups and downs of what’s going on with the economy and the markets over the next several years.”

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A stock analyst says Mudrick Capital’s AMC purchase and quick sale shows Wall Street insiders are ‘preying on the naivete’ of meme-stock traders

AMC Entertainment
  • Mudrick Capital’s purchase and then quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.
  • Trainer called the hedge fund’s quick profit an example of “institutions dunking on retail investors.”
  • He acknowledged that there are also retail investors profiting from the sale, but says the trading is risky and investors should take profits now.
  • See more stories on Insider’s business page.

Mudrick Capital’s purchase and subsequent quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.

Mudrick Capital sold all its stock in AMC Entertainment Holdings Inc. for a profit on Tuesday, the same day the movie theater chain disclosed the hedge fund had bought $230 million worth of shares, Bloomberg reported. The firm then went as far as to call AMC’s stock overvalued in the aftermath. The move didn’t sit well with Trainer.

“A blatant example of institutions dunking on retail investors comes from the Mudrick Capital trade,” he told Insider. “They bought 8.5 million shares from AMC and turned around and sold it directly to the public for a quick profit.”

The meme trading frenzy isn’t an example of retail investors “beating” institutions as there are still institutions profiting from this as well. While there are a handful of retail investors getting rich, institutions like Mudrick as well as brokers who collect fees from the trading frenzy are also drawing in money, Trainer said.

“Wall Street insiders are preying on the naivete of retail meme stock traders,” Trainer said in an email.

His message for retail investors who’ve gotten in on the AMC trade?

“Take the gains you’ve made right now to the bank, don’t try to time the market.”

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AMC pares steep losses after the Reddit favorite raises nearly $590 million in new share sale

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC closed off its lowest levels of Thursday’s session after the company said it raised $587.4 million by selling stock.
  • AMC, which is at the center of a fierce rally driven by retail investors, raised the funds by selling shares for $50.85, on average.
  • The movie-theater chain told investors they may lose the money they invest in their currently volatile shares.
  • See more stories on Insider’s business page.

AMC shares finished off session lows Thursday after the movie-theater chain at the center of this year’s massive rally fueled by retail traders said it raised nearly $590 million in a stock sale.

The stock had lost as much as 40% after the company early Thursday said it had planned to sell almost 12 million shares and warned investors that they could lose their money at a time of a stunning and volatile rally that has pushed AMC’s valuation to more than $30 billion.

In the afternoon, AMC said it sold the 11.6 million shares it wanted to offload and raised $587.4 million in the process. The average selling price was $50.85 apiece. The stock briefly turned higher after the update then reversed course to finish the session down 18% at $51.34. The decline marked the second in eight sessions.

CEO Adam Aron in a statement said it has now raised about $1.25 billion during the second quarter and the funds will strengthen its balance sheet and give it more flexibility to respond to business opportunities. The company recently began reopening movie theaters after it was forced to close them because of the COVID-19 pandemic.

AMC has taken advantage of a rally that’s driven its stock price up by more than 2,410% this year and itself is aware that its stock is likely overvalued.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in an SEC filing on Thursday during which trading in AMC was halted three times on the New York Stock Exchange.

AMC along with GameStop and some other companies have been embraced by retail traders on Reddit’s WallStreetBets forum, Twitter and other social media sites who have banded together to squeeze short positions. Short-sellers betting against AMC lost $2.8 billion on Wednesday alone as shares surged as much as 127%, according to data from analytics firm Ortex.

The recent rally was set off by major shareholder Dalian Wanda Group selling almost all of the remainder of its stake in AMC. Redditors responded by cheering the newly available shares and making their newfound weight felt in the market. Last week, AMC soared by 116%.

AMC on Wednesday finished 95% higher despite a share dump from hedge fund Mudrick Capital. The investment firm disposed of its AMC stake after concluding the stock was overvalued and carried higher by a wave of enthusiastic day traders, Bloomberg reported on Tuesday. AMC had said it would use the $230.5 million it raised from Mudrick’s purchase to make upgrades at its movie theaters and potentially make acquisitions.

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AMC warns investors to prepare to lose all of their money if they buy the stock amid epic rally

Trader NYSE
A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2020.

  • Even AMC thinks its stock is overvalued, according to a filing made with the SEC on Thursday.
  • The company warned investors that they should only invest in their stock if they are prepared to incur massive losses.
  • “We caution you against investing in our Class A common stock,” AMC said in the filing.
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AMC Entertainment’s announcement Thursday that it could sell up to 11.6 million shares came with an unprecedented warning to its prospective investors: be prepared to lose most, if not all of your investment in our company.

The movie-theater chain has experienced a dizzying rally in recent weeks, briefly soaring to more than $70 and generating a year-to-date return of as much as 3,325% as retail traders piled into the name. At a $30 billion valuation on Wednesday, AMC was worth more than Best Buy.

AMC CEO Adam Aron is taking advantage of the meteoric rise, having raised hundreds of millions of dollars already this week. The company sold $230 million worth of shares to hedge fund Mudrick Capital on Tuesday, and hundreds of millions more can flow onto the company’s balance sheet depending on the pricing of its 11.6 million share offering proposal.

But AMC is aware that its stock is likely overvalued, given that the pandemic ravaged its business and even prior to the pandemic, the company wasn’t profitable.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in a filing made with the SEC on Thursday.

AMC also warned its investors against investing in the company unless they are prepared to lose all of their money.

“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” AMC warned in the filing.

That risk was apparent in early Thursday trades, as the stock plummeted as much as 34% to $41.25.

amc stockcc.JPG
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AMC stock slides 34% as Reddit favorite plans to sell nearly 12 million shares

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC shares sank as much as 17% Thursday after the company said it plans to sell up to 11.6 million shares.
  • AMC, which is at the center of a fierce rally driven by retail investors, said it didn’t know how long the volatility would last.
  • The movie-theater chain told investors they may lose the money they put into its Class A shares.
  • See more stories on Insider’s business page.

AMC tumbled more than 30% during Thursday’s session after the movie-theater chain at the center of a massive rally fueled by retail traders on Reddit and Twitter filed a plan to sell nearly 12 million shares and cautioned investors they face potential losses.

The company reached an agreement with investment bank B. Riley Securities and Citigroup Global Markets Inc. to act as agents to sell up to 11,550,000 Class A shares from time to time, according to a filing with the Securities and Exchange.

AMC slid as much as 34% as it hit an intraday low of $41.25 then pared the loss. Investors yanked AMC sharply lower as potential share sales risk reducing the value of already available stock by increasing supply. Trading in AMC was halted three times before 10 a.m. Eastern Time on the New York Stock Exchange because of volatility.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said.

“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” it said.

AMC on Wednesday finished 95% higher despite a share dump from hedge fund Mudrick Capital, as retail traders active on Reddit’s WallStreetBets and other social media sites have been working together to squeeze short positions. Short-sellers betting against AMC lost $2.8 billion on Wednesday alone as shares surged as much as 127%, according to data from analytics firm Ortex.

The recent rally was set off by major shareholder Dalian Wanda Group selling almost all of the remainder of its stake in AMC. Redditors responded by cheering the newly available shares and making their newfound weight felt in the market. Last week, AMC soared by 116%.

Mudrick Capital disposed of its AMC stake after concluding the stock was overvalued and carried higher by a wave of enthusiastic day traders, Bloomberg reported on Tuesday. AMC said it would use the $230.5 million it raised from Mudrick’s purchase to make upgrades at its movie theaters and potentially make acquisitions.

AMC said Thursday is aiming to use any net proceeds from share sales for general corporate purposes, which may include repaying or refinancing debt or for capital expenditures.

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AMC short-sellers just lost $2.8 billion in a single day – and they’re now down $4.5 billion in 8 days amid a 500% surge for the stock

AMC Entertainment
  • AMC short-sellers lost $2.8 billion on Wednesday alone as shares skyrocketed as much as 127%
  • They’re now down $4.5 billion in just eight days, since AMC shares began a torrid surge that capped out at more than 500% on Wednesday afternoon.
  • AMC shares have benefited from renewed interest from Reddit day traders seeking to squeeze out short positions.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Short-sellers betting against AMC stock lost $2.8 billion on Wednesday alone as shares skyrocketed as much as 127%. They’re now down $4.5 billion in just eight days, since AMC shares began a torrid surge that capped out at more than 500% on Wednesday afternoon, according to data from analytics firm Ortex.

AMC slid 3% to $60.47 on Thursday as of 9 a.m. in New York.

Short-sellers felt the pain in other meme stocks as well as Reddit day traders banded together to execute squeezes of bearish positions. Shares in home retailer Bed Bath & Beyond rallied 62%, adding up to $681 million in losses, while retail chain GameStop’s stock rose 13%, delivering $414 million in losses, according to Ortex.

It’s activity reminiscent of the GameStop mania that dominated market activity in late January and early February, and the market’s most heavily shorted stocks – including AMC – are once again in focus. Mark-to-market losses from the 10 most-shorted US stocks totaled $4.5 billion just on Wednesday, Ortex data shows.

Yet despite the deep losses, short-sellers appear relatively unperturbed. The percentage of AMC’s free float held short had actually increased to 18% on Wednesday, up from 15.5% a week prior, according to Ortex. Further, data from Bloomberg showed that shorts only slightly pared their positions on Wednesday as AMC’s wild spike was transpiring.

“If you, as an investor, believe the share price will go back to where it was at the beginning of the year, shorting the stock [now] could bring huge profits,” Ortext cofounder Peter Hillerberg told Insider.

He continued: “However, so far, the short bets haven’t paid off, as the upward momentum in AMC has been going for a few days now and seems to only be increasing.”

Read more: Morgan Stanley identifies 28 underappreciated, high-quality stocks to own as the market’s most expensive names are due to continue underperforming

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