Shares of AMC Entertainment (NYSE:AMC) continue to struggle. Shares are down around 4% on Wednesday, the last trading day of May. Assuming it closes lower on the day, it will mark the sixth-straight daily decline for AMC stock.
In that span, shares are down more than 12%. Worse, the stock is trying to avoid its fourth-straight weekly decline, with the share price down about 25% in that stretch.
In recent trading, the action has investors talking about the stock’s high cost-to-borrow rate. In the past, a short squeeze has been a major catalyst for AMC stock. As a result, there has been less focus on the business and more focus on the mechanics of its stock. GameStop (NYSE:GME) and a few others can be included in this observation as well.
For AMC, the short interest currently sits at about 20.5%. Interestingly, the cost-to-borrow rate has climbed about 30% in just a day. Week over week, the figure has increased by almost 50%. Generally speaking, borrow rates tend to increase as demand from short-sellers increases.
Short Squeezes and AMC Stock
AMC stock reacts differently than other stocks when large short positions are uncovered. Before the short-squeeze trades over the last few years unfolded, investors may normally be alarmed by a high short interest.
However, for AMC, GameStop and a few others, increasing short positions has at times emboldened the bulls. That’s as they start to eye a potential short squeeze to send the stocks exploding higher.
That has worked in the past, but at times, it can fail too. Bed Bath & Beyond (OTCMKTS:BBBYQ) is a great example, as the firm recently went out of business.
While AMC stock has more staying power, the stock has not performed well. Shares are down 10% this year and almost 70% over the past 12 months. The stock also continues to trend lower, hitting lower highs for almost two years now.
A short squeeze could send AMC higher, but for now, shares continue to trudge lower. So far, there’s been solid support in the upper-$3 range.
On the date of publication, Bret Kenwell 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.
