AMC Entertainment (NYSE:AMC) is likely the most famous stock of 2021. Much was to do with the initial short squeeze where retail traders pushed the price from $3 to $20 in January. At the same time, GameStop (GME) had gone from $20 to a high of $483. Both names became infamous “meme stocks”.
Both ultimately faded off in the following weeks through February. GameStop had their revival in March and chopped around between $120 and $350 for months (still currently within that range). However, AMC took the crown for 2021 as the price surged in May and outperformed the initial short squeeze. The price rallied off $9 and reached a high of $72.62.
So as we draw into the close of 2021, where does AMC stand? Well, it is fair to say it’s not still sat on its thrown. The price has fallen 66% from June highs, now at $24.50. But the stock still has a large support. Backers of the stock come in huge numbers calling themselves “Apes”.
Victory or defeat for the Apes?
News hasn’t helped the price in recent weeks. Top executives at AMC reported large stake sales, accelerating losses in the stocks. AMC’s CFO cashed out of all of his vested shares. This has drawn attention from short sellers who are looking to build on the selling momentum and bring the price back down to pre-squeeze levels. Also, retail investors are underwater and their hands are being forced.
The retail interest in the stock was huge on the initial spike, with anyone from your relatives to work colleagues likely being involved. The second wave brought even more fresh faces in. And what price were these ones buying at? Likely anywhere from $20 to $70. Many of these investors will be holding deep losses and may be mentally forced to sell as they cannot face the loss anymore. Just in December, the stock is down 31%.
On the other hand, we cannot ignore the success that retail investors had on both of the rallies. They have made history in their fight against short sellers, especially Wall Street. Reddit group WallStreetBets have had lots of success this year in coordinating short squeezes on heavily shorted stocks. Who’s to say that retail won’t drive the price high once more. Maybe 2022 will get its own short squeeze.
Who’s in control currently?
Currently, shorts are in control. The price is dropping so they are in profit, whilst retail longs are underwater. Fundamentals have never really had a say in the price, but with a current market cap of $12.5B, the stock is overvalued.
How about the short interest? This is currently at 16.2%. Some bulls argue that the numbers aren’t real. They point to the existence of synthetic shares or naked shorts understating the number of people betting against AMC. So it is likely that longs selling for losses are the main driver behind the fall. No one wants to be the last one on a sinking ship.
So what next for AMC shares?
Even before the pandemic, cinemas were seeing decreasing numbers as the likes of Netflix and Disney take over the streaming sector. Will it be necessary for AMC to rethink their product and adapt to this new style of entertainment? This would surely be good news for traders.
But for now the stock price slides. Large buying volume was seen yesterday to help bring the price from $21 to a close of $24.50. Retail is still holding out for “the mother of all short squeezes” to $100. Whereas, popular Twitter trader @gurgavin said “There is support at $0”.
So will AMC continue to fall and be a story of heartbreak? Or will traders be able squeeze the price to see their Hollywood ending?
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