AMC Entertainment Holdings Stock Forecast: AMC issues 8.5m shares to Mudrick Capital

Update June 1: AMC Entertainment Holdings issued 8,500,000 shares of its Class A common stock to Mudrick Capital Management  for $230,500,000. AMC intends to use the proceeds from the share sale primarily for the pursuit of value creating acquisitions of theatre assets and leases, as well as investments to enhance the consumer appeal of its theatres. In addition, AMC intends to continue exploring deleveraging opportunities.

Update May 31: AMC Entertainment Holdings Inc (NYSE: AMC) has ended May with a bittersweet taste – a drop of 2.2% to close at $26.12. After hours, shares of the movie theater firm have further extended their falls to $25.69. Nevertheless, it is essential to note that AMC changed hands at under $10 earlier in the month. Investors that have jumped into the shares are probably enjoying the long Memorial Day weekend. The holiday is also a good time for the company, as Americans benefit from the reopening to see the latest films. 

Poor old Dalian Wanda sold out of nearly its entire AMC stake a tad early then. Chinese conglomerate Dalian Wanda Group had been one of the biggest shareholders in AMC, but it was reported last week that Dalian has sold virtually all of its shares, with just a tiny residual holding left. They left a bit behind them given the surge in AMC shares this week alone. The shares nearly reached the moon on Thursday, breaking all resistances on the way to a staggering 35% gain and confounding market watchers in the process. AMC took over the New York Stock Exchange on Thursday, outstripping such luminaries as Amazon, Apple and others to be the highest traded volume of any stock on the day. AMC rallied to a new four-year high, closing at $26.52. According to analytics firm S3 Partners, nearly 20% of the AMC share float is sold short and those shorts are now nursing nearly $2 billion in losses for 2021.

AMC stock forecast

It must be said the move does have precedence given what happened with GameStop (GME) in January and, indeed, AMC shares themselves. But while GameStop has struggled to recapture old levels from January, AMC has smahsed through them. GameStop peaked at nearly $500 and is currently trading nearly 50% lower at $254. AMC shares on the otherhand have smashed through the January peak of $20 and pushed on another 30%. The irony of the GameStop (GME) saga being made into a movie that will be shown in AMC cinemas is not lost on AMC shareholders who see their stock as the real star of the meme stock show.

After such a powerful move, it is no suprise to see multiple momentum oscillators flash as overbought. Momentum oscillators can remain in overbought or oversold conditions for longer than just one session and can retreat to neutral if the underlying price consolidates, it does not have to fall. However, the more time zones show up as overbought and the more indicators, then the more powerful the signal. In the case of AMC, the weekly Relative Strength Index (RSI) has surpassed the overbought levels seen in Janaury. The Commodity Channel Index (CCI) another momentum oscillator, is at the highs last seen in January. Just to make sure of our thesis, adding another well-known oscillator, the Williams %R, also shows overbought levels not seen since January. So caution is needed.

Drilling down to the daily chart for more detail, the story is the same with all main momentum oscillators showing overbought conditions and most as high or nearly as high as the levels seen back in January. With warning lights flashing then, traders must be careful and use strong risk management. Use trailing stops to guarantee profits. You do not have to be attached to your AMC shares. Selling them is not a sign of weakness, and you can hopefully buy them back again and for a lower price if you trade well. Volatility can lead to some nice gains but also to some sharp losses without a plan for how to manage risk.

Update May 28: AMC Entertainment Holdings Inc (NYSE: AMC) has been soaring on Friday by another 25% to above $33, building on massive increases on Thursday. Compared to last Friday's closing level of just under $13, the current session high of $36.72 means the value of the Kansas-based theater company has nearly tripled. It Is essential to note that the RSI is pointed to stretched conditions, but retail traders' enthusiasm is hard to curb. The long Memorial Day weekend promises increased ticket sales.