Love It or Hate It, AMC Provides Great Trading Moments

This year has been really good to AMC Entertainment (NYSE:AMC) stock. In spite of being down 45% from its highs, it is still up 1,700% year-to-date. Compare that to Apple (NASDAQ:AAPL) which is up only 10%.

Neon sign of an AMC (AMC) theater
Source: rblfmr / Shutterstock.com

I mention these two together because they are on opposite ends of the financial health spectrum.

Apple’s business has never been better and the earnings reports are extremely strong. The revenues and bottom lines are the envy of the world. On the other end, AMC business is in shambles and the stock has never been stronger.

You often hear the expression that a stock is broken but the business isn’t. AMC is the exact opposite of that. The business is broken and the stock is a superstar.

I am not picking on the job that management has done. The pandemic disrupted all businesses that operate with crowds.

Just now they are at the starting gate in the rebuilding process.

AMC Stock Defies Logic

AMC Stock Chart Showing Trading Range
Source: Charts by TradingView

Things were not going well already before the pandemic. AMC stock had fallen 80% even before the novel coronavirus hit the U.S. It then crashed with the rest of Wall street and finally bottomed in January of this year.

And that’s when the craziness started as it rallied more than 4,200%. I don’t care what anyone says, that was flat out wrong. Clearly there’s something more than investing going on with this stock.

It captured the imagination of the new breed of investors on social media. There’s no arguing with their logic, they know what they know and that’s final. Once the rest of us can get over that fact, AMC stock is a good trading vehicle. That’s where my conversation is going to go today.

I don’t hate the stock, I just hate the idea of investing in it. I make it a point to keep feelings away from the investment and trading decisions.

We will soon learn more about the reopening process when they will present earnings. Fundamentals aside, the range in play is between $31 and $46 per share. AMC currently sits in the middle of that.

Moreover, this was a level in contention on several occasion like on July 8, and early June. If the bears are able to break through $31, they can overshoot $12 lower. Conversely if the bulls are able to overcome the resistance through $47 per share, they can rally $13 more. Meanwhile, it is a standoff going into earnings.

Earnings Will Soon Play a Big Part

The reaction to the earnings is a guessing game. Most traders are reluctant to accept that fact and still try to prognosticate the action at the open. They are wrong for doing that, because a binary outcome is a coin flip.

Case in point: Apple reported a blockbuster scorecard and the stock fell. There is no rhyme or reason because sentiment is in charge. Negative reactions to earnings are from having bad expectations not necessarily bad results.

People tend to be overconfident with their ability to guess. I prefer to follow the clues in the charts. Especially when dealing with this AMC stock because it’s erratic. One thing I wouldn’t do is short it. The risk of super spikes is too great.

I am confident that I may have upset a few readers today. It is impossible to write about AMC stock and avoid this. My intention was to offer information about significant levels for traders.

The investment thesis in AMC is personal and illogical, therefore, it is not worth debating. Both sides of the fence know what they know and neither want to know otherwise. It is futile to try to convince haters to love it and lovers to hate it.

I am also positive that after the hoopla dies down, management will have to deliver on some financial metrics. It can’t continue to trade on sentiment forever.

The company already had high debt levels in 2019. This has more than doubled now. It will be critical to start generating their own cash to operate. Management even  resorted to selling stocks to fund their operation. The company recently unsuccessfully tried to discourage investors from chasing AMC stock.

Don’t fight the tape is a meme on Wall Street. They should add another to say don’t fight the ape.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.


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