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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Nokia surges 9% as the meme stock favorite says it plans to raise guidance for 2021

Nokia
  • Nokia shares climbed as much as 9% Tuesday following an update from the meme-stock favorite.
  • The Finnish telecom equipment maker said it’s likely to raise its financial outlook for 2021.
  • The company may increase its view on metrics including net sales.
  • See more stories on Insider’s business page.

Nokia shares soared Tuesday after the Finnish telecom equipment maker — considered part of the so-called group of meme stocks — told investors it may lift its financial outlook for the year.

The company said its business has continued to strengthen during the second quarter, brightening prospects for the rest of 2021. Net sales are among the metrics that may be revised later this month.

NYSE-listed shares of Nokia climbed 7.8% ahead of the opening bell after popping up as much as 9% to $5.87. The shares have been swept up in the meme-stock trading phenomenon spearheaded by retail investors who have also embraced GameStop and AMC Entertainment. Traders active on Reddit’s Wall Street Bets forum and other social media sites have been banding together to buy and hold onto stocks targeted by hedge funds betting on their decline.

Nokia said it’s making progress with its three-phased plan outlined in March to achieve sustainable and profitable growth.

“Our first-half performance has shown evidence of this in good cost control and also benefited from strength in a number of our end markets. We continue to expect some headwinds in the second half as we have previously highlighted but our performance in the first half provides a good foundation for the full year,” said Pekka Lundmark, Nokia’s president and CEO, in a statement.

An updated outlook from Nokia would be part of the company’s July 29 release of second-quarter and half-year financial results.

In April, the company reiterated its view of net sales of €20.6 billion ($24.4 billion) to €21.8 billion and a comparable operating margin of 7%-10%. It had also backed its view of positive free cash flow and a rate of 10%-15% return on invested capital.

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A ‘finfluencer’ with millions of followers on social media says Robinhood and other trading apps might do more harm than good to young investors

Tori Dunlap
  • Retail trading apps could cause issues for young investors according to money expert Tori Dunlap.
  • She thinks the apps do not educate their users enough and are not inclusive to minority groups.
  • Robinhood was recently forced to pay $70 million after FINRA accused the app of causing harm to customers.
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Young investors, and Gen-Zers in particular, are pouring their spare cash into things like cryptocurrencies and meme stocks, drawn in by the social media communities that have banded together to take on Wall Street giants, and popularized by retail trading apps like Robinhood.

As positive as it is to see young people get involved with their own finances, these apps might be doing more harm than good, seeing as they don’t educate their users enough and aren’t particularly inclusive places, according to ‘finfluencer’ and personal finance expert Tori Dunlap.

Dunlap, who has millions of followers on Instagram, TikTok and Twitter and runs personal finance education and advice brand ‘Her First $100K’, says the problem with these apps is they are appeal to new, young investors that are often unaware of risks, or what a good investing strategy is due to a lack of education on the subject.

“They’re focusing on young people, which is great, but young people who don’t really know what they’re doing. They don’t really know how to invest, don’t really know how to grow their wealth and so I think that that’s a huge risk.” she told Insider in an interview. “Going after this certain population is great, but what are you doing to educate them? What are you doing to make they understand a risk before, you know, the risks involved before they start investing?” she said.

Dunlap knows a thing or two about looking after her finances. She started her first business age 9 and by the time she was 25, she’d built up savings worth $100,000.

Retail trading has soared in popularity over the past 18 months throughout the COVID-19 pandemic, with apps like Robinhood or platforms like eToro seeing booming business. But they’re not without pitfalls.

Just last month Robinhood agreed to pay nearly $70 million to US regulators to settle claims it had misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading. This was the largest fine on record to the Financial Industry Regulatory Authority.

Alongside this, retail trading apps and social media influencers who talk about finance have pushed the idea of democratizing trading, meaning that anyone can do it and they don’t necessarily need financial professionals to help them make money from investing.

Robinhood was not available for comment when contacted by Insider.

Dunlap said apps like Robinhood have done well at making investing more interesting and appealing to young people , which she thinks is key in terms of them starting in growing their wealth early in life, but she also believes they still have a long way to go.

Trading apps often “gamify” activity, rewarding users with little bursts of digital confetti on their screens when they make a trade, or playing little jingles to notify them of updates. There have been well-documented cases of users that have suffered the equivalent of gambling additions as a result, for example.

Another one of her qualms is that the community the trading apps create aren’t especially inclusive. The lack of educational tools is one issue, but Dunlap said she thinks it reaches all the way to these apps are designed, which she describes as ‘bro-y’.

“It’s not really a democratization if it doesn’t involve minority groups, if it doesn’t also involve women, and people of color and other members of other minority groups,” Dunlap said. “Yes, it’s, like, appealing to younger people, but it’s not straight white male hedge fund managers, it’s just straight white male ‘finance bros.'”

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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 and GameStop lose momentum as the meme-stock favorites stage multi-day declines

GameStop
  • Since the start of July, AMC and GameStop have fallen 20% and 11%, respectively, as interest in the stocks has begun to wane.
  • Trading volumes in both companies have fallen, especially for AMC, which last month saw a precipitous run-up amid massive volume.
  • The top post on the Reddit forum WallStreetBets was of a 79% loss on AMC call options, which reflected a loss of more than $10,000 for the poster.
  • See more stories on Insider’s business page.

Shares in meme-stock favorites AMC Entertainment and GameStop continued multi-day falls on Wednesday as some Reddit traders took on heavy losses.

AMC ended the day at $45.07, down 9.8%. GameStop closed at $190.66, for a 4.5% loss.

Since the start of July, AMC and GameStop have fallen around 20% and 11%, respectively, as interest in the stocks has begun to wane. Trading volumes in both companies have fallen, especially for AMC, which last month saw a precipitous run-up amid massive volume.

On Tuesday, AMC enjoyed a brief pop in morning hours after CEO Adam Aron tweeted that the company would abandon plans for a share issuance in 2021, following a wave of social-media backlash. AMC shares would later erase gains and close lower on Tuesday, and continue to fall on Wednesday. The stock is down roughly 18% from Tuesday’s highs.

GameStop’s decline has been somewhat more measured. The stock has trended down since a June earnings call that, despite better-than-expected revenue numbers, disappointed some investors and analysts. Still, GameStop has not yet returned to its relatively sluggish April prices – let alone its dismal 2020 numbers, before the meme-stock frenzy kicked in.

Retail traders who had bet big on AMC using call options have taken to Reddit to post their so-called loss porn. At publication time, the top post on the forum WallStreetBets was of a 79% loss on AMC calls, losing the poster over $10,000.

But some commenters noted that the ill-fated poster’s call options did not expire until January 2022, and so could recover value should another price surge occur.

“Plenty of time,” wrote one hopeful Redditor.

Read more: GOLDMAN SACHS: Buy these 11 oil stocks as prices remain high through the next 18 months amid spiking demand and OPEC disagreements

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‘Big Short’ investor Michael Burry compared the meme-stock craze to the dot-com and housing bubbles – and warned of an impending crash

Michael Burry Getty
Michael Burry.

  • Michael Burry said the meme-stock craze reminded him of the dot-com and housing bubbles.
  • “The Big Short” investor predicted the buying frenzy would end in a brutal crash.
  • Burry also explained why becoming a meme stock can be a huge boon for a company.
  • See more stories on Insider’s business page.

Michael Burry warned the frenzied buying of meme stocks reminded him of the dot-com boom and housing bubble in a recent Barron’s interview, and predicted the social-media favorites would plummet in value soon.

The Scion Asset Management chief noted the people who went all-in on technology stocks at the turn of century, and those who took out massive loans to buy multiple homes in the mid-2000s, didn’t expect the good times to end. Meme-stock investors are falling into the same trap and risk getting burned, he said.

“We probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,” Burry told Barron’s in an email. “We’re running out of new money available to jump on the bandwagon.”

Burry is best known for his billion-dollar bet against the housing bubble in the mid-2000s, which was immortalized in the book and the movie “The Big Short.” He also took a stake in GameStop in 2019 and underscored the video-game retailer’s potential in letters to its board, emboldening retail investors to execute a short squeeze of the meme stock at the start of this year.

The Scion chief told Barron’s that Wall Street professionals are now tracking social-media chatter and cashing in on the latest meme stocks.

“They are in a better position than retail to participate, sniff out and start gamma squeezes in the options market,” he said. A “gamma squeeze” refers to buying call options on a stock to force market makers to purchase the underlying shares to hedge themselves, which in turn pushing the stock price up even more.

Burry, who has been warning of an historic market crash for months, also trumpeted the success of his GameStop wager. While he exited the position before the stock skyrocketed in January, he still turned a sizeable profit. “If I get within years of a thesis coming true, I’m happy,” he said.

Finally, the investor emphasized that for an ailing business like GameStop or AMC Entertainment, being picked as a meme stock is like hitting the jackpot. They can issue shares at inflated prices to rake in huge sums, allowing them to pay off their debts, invest in their operations, and revitalize their prospects.

“This is a Godsend for these companies,” Burry told Barron’s. Indeed, GameStop went from spending nearly $200 million to repurchase 37% of its outstanding shares in 2019, to raising over $1.6 billion from share sales in the first six months of this year.

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Robinhood is warning investors in its IPO filing it could become a meme stock and that heightened attention from retail traders is a risk

GettyImages 1291817095
  • Robinhood warned investors of price volatility risk if retail-investor interest is high in the IPO.
  • The trading app is making 20% to 35% of its stock available to retail traders through its platform.
  • Other meme stock companies like AMC have warned of volatility and the subsequent risk, as well.
  • See more stories on Insider’s business page.

Robinhood warned investors it’s at risk of becoming a meme stock when it starts trading publicly.

The company, which filed for an initial public offering Thursday, is making 20% to 35% of its stock available to retail traders through its app, meaning a larger proportion of retail investors may participate in the offering “than is typical,” said the company, which will be listed on the Nasdaq under the ticker “HOOD.”

Retail investors have become known for targeting meme-stock companies and driving extreme volatility in share prices. Take GameStop’s epic rally in January and AMC Entertainment’s subsequent rally in May, for example. If they pour into Robinhood shares in its IPO, that could cause price volatility, the company said.

“High levels of initial interest in our stock at the time of this offering may result in an unsustainable trading price, in which case the price of our Class A common stock may decline over time,” Robinhood said in its IPO filing.

Then, if the price is above what investors deem reasonable, some may short the stock, “which would create additional downward pressure on the trading price,” the company said. Robinhood did not immediately respond to Insider’s request for comment on the story.

Other companies popular among retail traders have similarly warned of price volatility – except those warnings didn’t come until after their stocks had already skyrocketed amid its newfound meme status.

In June, AMC Entertainment told investors to prepare to lose all of their money if they invested in the stock amid its dizzying rally. Orphazyme, a small Danish biotech company, told traders they could lose a “significant portion” of their investment if the stock declined from its unprecedented highs. Car rental company Hertz said at one point its stock could be “worthless” and that investing in it involved a “high degree of risk.”

Ahead of filing for its public offering, Robinhood unveiled the new IPO Access feature that would allow users to buy shares of companies at the IPO price, before the stock starts trading on the open markets.

Robinhood, which launched in 2013, said those shares typically only go to institutions or wealthier investors. “Here’s to democratizing IPOs for all!” the company said in the May press release about the new service.

Read more: An investment chief for Lombard Odier says a rise in volatility could knock 10% off the S&P 500 in the next six months. He breaks down the 10 ways to shield, or boost, a cross-asset portfolio

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Robinhood’s IPO filing reveals over 50 lawsuits related to trading restrictions it imposed during January’s meme-stock madness

Vlad Tenev
Vlad Tenev, co-founder and co-CEO of investing app Robinhood.

  • Robinhood’s IPO filing shows the company faces more than 50 legal complaints stemming from January’s meme-stock trading.
  • Customers were angered by Robinhood’s move to temporarily stop users from buying certain stocks.
  • Robinhood said it is cooperating with investigations by officials.
  • See more stories on Insider’s business page.

Retail trading platform Robinhood is facing more than 50 lawsuits stemming from the restrictions it put in place to manage the trading mania in January surrounding so-called meme stocks, according to the company’s IPO filing.

Robinhood in its S-1 filing with the Securities and Exchange Commission on Thursday said it has become aware of about 50 putative class lawsuits and three individual actions that have been filed against it in various federal and state courts. It said two of the class action complaints have been voluntarily dismissed with prejudice.

The legal complaints follow Robinhood’s move in January of temporarily stopping users from buying shares of GameStop, AMC Entertainment and other stocks whose prices quickly soared as retail investors defended the shares from short-sellers.

“The complaints generally allege breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty and other common law claims,” Robinhood said in the SEC filing. It added that several complaints further allege federal securities claims, federal and state antitrust claims, and certain state consumer protection claims based on similar factual allegations. It said 19 of the putative class actions also name other broker-dealers or market makers as defendants.

The company said it’s being investigated by regulators including staff at the SEC and the antitrust division of the US Department of Justice. It said Vladimir Tenev, Robinhood’s co-founder and CEO, and others have received requests for information and testimony, subpoenas and that the US Attorney’s Office executed a search warrant to obtain Tenev’s cell phone.

“We are cooperating with these investigations and examinations,” Robinhood said.

The company on Wednesday agreed to pay nearly $70 million to settle claims by FINRA that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading.

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SoFi is soaring in popularity on Reddit as retail investors look for opportunities in the fintech company following its merger with a Chamath Palihapitiya-backed SPAC

Chamath Palihapitiya
  • Chamath Palihapitiya-backed SoFi Technologies is gaining steam among Redditors.
  • Comments about the company, which went public last month, surged on Reddit this week.
  • Retail traders noted the end of the post-merger lockup period and the high short interest.
  • See more stories on Insider’s business page.

SoFi Technologies is quickly gaining traction among retail investors.

The fintech company that went public via a Chamath Palihapitiya-backed SPAC last month has seen an influx of retail flows in the last week, according to data from Vanda Research.

SoFi retail inflows Vanda Research

In a note, Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia said the stock is one that “looks increasingly likely to capture some notoriety” as comments about the company accounted for 20% of activity on Reddit’s Wall Street Bets forum in the last day.

The analysts noted the end of the post-merger lockup period and the rise in short interest as “the two main arguments to buy the stock” among retail traders.

One Redditor, who received 500 upvotes, said in a post that the end of the lockup period Monday would give retail traders an opportunity to buy into the stock. Shares dropped 2% Tuesday, and Wednesday they rose 2.1% at 8:40 a.m. in New York.

Another Redditor, who received 1,600 upvotes, posted a bullish view on the company, saying it has a lot of potential.

“The moment I heard SOFI was going public was the moment I dropped a lot of money into it, used the app for a long time and they’re going to be dominating the FinTech sector,” the Redditor said.

Redditors, who have become known to invest in heavily shorted companies, also noted SoFi’s high short interest rate. According to Fintel.io, the company has a short-volume ratio of 21%.

Travis Rehl, the founder of Reddit investing-tracker HypeEquity, said in a morning note that many retail investors looking to hold SoFi long-term are comparing it to the next Square or PayPal. Among other financial services, the company has a trading platform called SoFi Invest.

The platform recently announced it would allow users to get in on the initial public offerings of four Palihapitiya-backed blank-check companies. Self-proclaimed “SPAC king” Palihapitiya is a favorite among retail investors, as other companies backed by him, including Clover Health and Virgin Galactic, have become meme stocks.

Read more: These 5 stocks have definite potential for a meme-driven short-squeeze this week, according to Fintel. One of them is even stealing the AMC and GameStop spotlight with its celebrity SPAC status.

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