AMC Entertainment stock has been on a downtrend for months now.
Many retail investors who were profitable last year are now facing minor losses.
But how long will this downtrend last for, and what all is exactly feeding it?
Afterall, we are in a bear market, aren’t we?
Let’s break it down together.
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Why is AMC stock down?
AMC stock is down more than 8% on the 5-day trading chart, more than 46% in the past month, and a little over 41% this year.
Let’s compare this to the SPY which tracks the overall market.
SPY stock is down more than 2% in the past 5 days, more than 7% in the past month, and almost 11% this year.
This is quite a significant difference.
So, why does AMC Entertainment stock keep sinking even as retail investors buy and hold the stock?
Well, there are 3 main reasons why this stock is falling more than the average stock.
Let’s go over them.
#1. Insiders have sold stock (explained)
Yes, AMC executives have sold a lot of stock.
This has new investors wondering whether insiders believe in the company or not.
The truth is executives at AMC Entertainment Holdings, Inc. are mainly compensated through stock.
In the chart above we can see that the amount of compensation in stock has drastically increased over the years.
The salary of an AMC executive is very low compared to how much they get paid in stock.
This means that at some point, executives will need to sell stock to pay themselves.
The company has improved its fundamentals incredibly and there are no signs the largest movie theatre chain is headed backwards.
AMC has been consistent with growth, innovation, and getting out of debt.
The century old movie theatre chain recently invested a quarter billion dollars in state-of-the-art laser projectors.
#2. Trading volume has gone down
AMC’s trading volume has played a big role towards the downtrend.
High volume and momentum either keep a stock consolidating when shorts bet against it or drive big price runups.
AMC’s trading volume has been below average in the recent weeks and months.
The exception was when AMC momentarily ran up to $34 per share before ultimately being halted.
AMC’s trading volume surged to 147.8 million during the rally in late March.
Today, AMC’s trading volume is almost half of its average volume of 52 million.
Investors tend to buy less during a bear market which I’ll go over a little more down below.
So, while AMC shareholders are still buying the stock, it’s safe to say majority are simply holding it before liftoff.
#3. Massive short selling continues to occur
It’s no surprise short sellers got caught in a scandal from shorting AMC, GameStop, and other so called ‘meme stocks’.
AMC Entertainment continues to be the victim of short selling from huge financial firms such as Citadel, and even Bank of America.
Overleveraged short selling has been a massive cause for AMC’s downtrend.
AMC stopped being at risk for bankruptcy after the first quarter of 2021, yet hedge funds have not let the stock take a breather.
In fact, the number of shares on loan (grey line) that have yet to be bought back by short sellers has increased significantly.
This is the most shares short sellers have borrowed of AMC stock to short it.
The stock is shorted more today than it was in January of 2021 when the stock ran up to $20, and more than it was in May when AMC hit an all-time high of $72 per share.
So, what does this tell us?
Will AMC have a bigger runup the third time around?
But unfortunately, because insiders are cashing in, short sellers are still at it, and we’re in a bear market, it seems that it’s going to require time for the stock to move up again.
However, the markets are unpredictable, and things may reverse very quickly for AMC and for the entire market.
Are we in a bear market?
Technically yes, we are in a bear market.
While some experts expect this to be a long-term bear market, the biggest CEOs in America are saying they don’t expect a long bear market.
How long do bear markets last for?
Bear markets typically last between 9.6-15 months but could last longer.
This timeframe is considered to be long, though CEOs don’t expect the market downtrend to linger.
SPY stock has been in a downtrend for the past 6 months and is currently down by more than 8%.
Regarding AMC and other so called ‘meme stocks’, they’re simply moving with the market.
As we transition away from this bear market, I expect AMC and others will follow an upwards trajectory again.
This is where the real rallies will begin.