AMC Entertainment Holdings, Inc. (CMA) shares soared more than 200% in Wednesday’s session amid short press.
Key points to remember
- AMC shares rose sharply amid an ongoing short squeeze after its $917 million capital raise to stave off bankruptcy.
- Analysts say movie theaters could finally weather the storm, with B. Riley predicting a return to normal in 2023.
- The stock broke two keys resistance levels in Wednesday’s session, but an overbought relative strength index (RSI) indicates an upcoming consolidation.
Earlier this week, the company announced that it had secured $917 million in equity and debt capital to stave off bankruptcy. Management believes AMC’s financial track has been extended through 2021, assuming it will continue to make progress in negotiating lease payments and deadlines with landlords.
B. Riley analysts also weighed in on the movie industry earlier this week, saying the slate of upcoming movies is among the strongest in the industry in years and expects a pick-up. complete by 2023. The company reiterated its neutral rating on AMC stock. but raised his target price $3.50 to $5.50 per share, a 20% premium to the market price.
The capital increase triggered a rally in the stock and the subsequent short squeeze which accelerated through Wednesday. With approximately 39 million short actions and 1.5 days to covermany short sellers capitulated and sought to hedge their positions, contributing to Wednesday’s rise.
Point
A short press occurs when a stock or other asset rises sharply, forcing traders who had bet its price would fall to buy it in order to avoid even greater losses. Their scramble to buy only adds upward pressure on the stock price.
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From a technical standpoint, the stock broke earlier highs of around $5.00 and $7.00 during Wednesday’s session towards trendline resistance at $21.45. The RSI moved deeper into overbought territory with a reading of 95.15, but the moving average convergence divergence (MACD) remains in a strong uptrend.
Traders should watch for consolidation above the trendline Support to around $12.00 over the next few sessions. If the stock breaks down from these levels, traders could see a move towards support at around $7.45. If the headline breaks, traders could see a move to fresh highs, although that scenario seems unlikely given the overbought RSI readings.
The essential
AMC shares rose sharply after a capital raise triggered a short squeeze that accelerated through Wednesday’s session. While analysts have been bullish on movie chains, the move to pre-pandemic pricing will likely be short-lived given the overbought RSI reading and analysts’ current price targets.
The author does not hold any positions in the stocks mentioned, except through passively managed index funds.
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