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AMC rally will be met with ‘swift and severe selling,’ drops 42% after opening

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The meme stock hype was in full swing once again on May 14. After AMC closed 78% higher on May 13, the stock opened 130% higher on May 14.

It proceeded to sell off most of the day, dropping 42% but still finished the day 32% higher than the prior close.

AMC opened at $11.88 and that was the high of the day, closing at $6.85. The prior day’s close was $5.19. 616 million shares changed hands, a massive leap from the typical volume of about 25 million shares per day.

Cory Mitchell, an analyst with Trading.biz said, “AMC as a company continues to lose money and has for several years. While it is possible an orchestrated group of buyers could continue pushing the stock up, someone will be left holding the bag. There is always demand for high-quality profitable companies because people want to own those stocks.

“This AMC trade is just pure hype. People are only buying because they believe more people will come in and buy after them, so they can sell at a higher price to those new buyers. The stock may go higher in the short-term, but unless the company has a massive turnaround whatever rally develops will be followed by swift and severe selling.”

AMC was trending lower and near a 52-week price low on May 10. Then on May 12, Keith Gill, better known as Roaring Kitty and the face of the 2021 meme stock craze, posted on X for the first time in almost three years. He posted a drawing of a person sitting forward in their chair, which means “pay attention.” There was no mention of stocks or guidance provided, but traders took it to mean that 2021 was potentially about to repeat.

In 2021 there was an orchestrated short squeeze that saw AMC’s stock rise more than 3000% through the first half of the year. That was the peak, and the stock has been in a downtrend since. As of September 2023, the stock has been trading below where the 2021 rally started, having given back all the gains and then some.

That hasn’t deterred speculators, who seemed eager to think the stock could soar once again. The rally appears to have faded quickly, though. After opening so high on May 14, the stock was met with relentless selling most of the day.

Fundamentally, AMC lost $1.01 per share over the last year, which is better than the $2.10/share it lost in 2023 and the $8.22/share it lost in 2022. That may seem promising, but the company has made progress before only to lose even more the next year. The only profitable year the company has had since 2017 came in 2018. Following a big down year in 2017 the company bounced back to profitability in 2018, only to post another big loss in 2019.

Analysts are projecting a loss of $1.60/share for 2024, and for the company to remain unprofitable in 2025.

Traders will certainly be drawn to the high volume and volatility. There is potential money to be made on such big price swings, both on the long and short side. Big losses are also possible; huge price gaps are possible which can throw a wrench in risk management plans. For investors, this is not a stock to add to the portfolio.

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