AMC has released a report warning shareholders from the risks of buying APE shares as the company gets ready to sell up to 425 million shares.
However, the report also warned short sellers of the possibility of an APE short squeeze.
APE traded below $2 on Friday despite strong shareholder sentiment.
The equity has an average trading volume of 19.8 million but has traded lower in the past week.
As the markets continue to tumble and short sellers double down on their positions, stocks such as AMC and APE also continue to take the heat.
But short sellers could be in for a big surprise.
All it takes is coordinated heavy trading activity to trigger massive price fluctuations, at least according to AMC Entertainment’s statement.
Let’s discuss it.
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AMC Issues Strong Short Squeeze Statement
I’ve touched topic on the warning AMC released for shareholders below as the company prepares to sell up to 425 million APE shares.
“Under the circumstances, we caution you against investing in our AMC Preferred Equity Units, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” said an official statement from AMC Entertainment.
However, the company also warns short sellers of a potential APE short squeeze, resulting in severe losses for those betting against the security.
“purchasers of our Class A common stock and AMC Preferred Equity Units could incur substantial losses if there are declines in market prices driven by a return to earlier valuations; to the extent volatility in our Class A common stock and AMC Preferred Equity Units is caused, or may from time to time be caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our Class A common stock and AMC Preferred Equity Units as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline.”
In this passage here, AMC is warning both retail investors and short sellers alike of what a short squeeze could muster.
The losses for short sellers could be grand as coordinated trading activity causes a major spike in price.
For retail investors, buying the spike could cause significant losses as the stock enters a cooldown period.
What AMC is accepting though is the possibility of a short squeeze whether it be AMC or APE shares.
What Will Trigger a Short Squeeze?
According to AMC’s statement, a short squeeze is triggered by coordinated trading activity, resulting in share price spikes.
Volume was key in January when AMC surged to $20 per share, it was key when the stock skyrocketed to $72 per share in June, and it will be the key today.
The bear market is pinning stocks, but as the market reverses, it’s very possible we see a surge in trading activity in AMC (and APE) again like we did in 2021.
AMC surged in March when it’s weekly volume had surpassed 100 million.
The stock was halted but shares rose despite the market’s downtrend.
AMC’s current average trading volume is 41.2 million though it has been trading at only half.
Will retail investors be able to trigger AMC or APE to squeeze?
I’d love to hear your thoughts on this.
Leave a comment down below.