AMC Entertainment (NYSE:AMC) stock has quietly returned to where it sat before last year’s explosion.
The roundtrip has spectators wondering if we’ll finally find support now that we’re testing a level that played such a significant role in the past. Though we’ve seen a few bounce attempts, they’ve been feeble.
Patience is required, and AMC stock options offer a more innovative way to play than buying equity outright.
Since the stock has become unmoored from its fundamentals, technical analysis should drive your decision-making. Following the trend has worked wonderfully over the past year, and I suspect it will continue to do so.
To that end, let’s start with a look at the weekly and daily charts.
AMC Stock Charts
The big picture reveals how consistent the unraveling has been ever since insanity seized AMC and boosted its share price up 700% over two weeks last May.
Though we’ve seen a few bounce attempts since the peak, each ultimately ended in a lower pivot high. Along the way, we breached the 20-week and 50-week moving averages. So far, the recent test of the 200-week moving average is holding, but we’ve yet to see any upside follow-through.
And that, ultimately, is the problem. Going sideways in a downtrend sets up quality bear plays when support breaks.
To get anything going on the long side requires resistance to fail. But so far, we’ve seen nothing of the sort. Rallies continue to get rejected, and the long-term downtrend remains firmly entrenched.
By itself, that would be warning enough. But we also have a vicious bear market gripping the broader market that’s poisoning investor demand for speculative plays like AMC stock. There isn’t the appetite for rallying the troops behind a meme stock when the world is burning.
Keep an Eye on the Price
If you want evidence that sentiment is turning up for AMC on the weekly chart, set an alert at $21. The latest pivot high or resistance zone needs to be broken to change the trend. Until that happens, bullish directional trades have low odds of success.
The daily chart paints a similar if more detailed picture.
We’re sinking below all major moving averages giving few reasons for optimism. If there’s one silver lining for bulls, the old ceiling near $14.50 that precipitated last May’s surge is now acting as a new floor. It’s allowed prices to carve out a series of equal pivot lows bringing stability and a potential bottoming process into play.
It remains to be seen if this is a continuation or reversal pattern. And that makes waiting for evidence before deploying directional trades the intelligent move.
I like short trades under $14.50 and long trades over $21.
There is another path to profits if you’re willing to lean neutral to slightly bullish while the range works itself out.
The Third Option
The low price tag and sky-high implied volatility make AMC stock a quality candidate for selling puts. The trade makes sense if you’re a willing buyer at lower prices or if you believe the downside is limited at this stage.
By selling puts, you obligate yourself to buy 100 shares of stock at the strike price in exchange for getting paid a premium. Usually, we sell short-term options to game the higher rate of time decay while shrinking the exposure window.
The Trade: Sell the April $12 put for 90 cents.
If AMC stock sits above $12 at expiration, you’ll pocket the $90 per contract. Alternatively, if prices fall below $12, you’re on the hook for acquiring shares at $11.90.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
