Banks, market makers, and hedge funds are all very well aware of the trouble stocks with extremely high short interest can mean for them.
Financial institutions have been overleveraging printed money to help hedge funds keep up with margin requirements and borrowing costs.
Hedge funds have have lost billions despite turning a few profits recently from plays such as AMC and GameStop.
Still, any ‘gains’ seen on paper can easily turn upside down with another upswing. Long short sellers are going to burn new shorts getting in on these plays.
Welcome to Franknez.com – S3 Partners are reporting a 100/100 short squeeze score again based on algorithms. An AMC short squeeze is inevitable.
Let’s get started!
If you don’t know who S3 Partners are, they’re a company similar to Ortex. These companies gather real-time short interest data and other analytics.
Ortex may not have a short squeeze predictability score but S3 Partners does.
The algorithm has put AMC at a 100/100 short squeeze score. And although this score fluctuates from time to time, it should be no surprise that AMC has hit this predictability score more than once.
AMC’s short interest is at an outstanding 17.65%! This is self-reported and could be significantly higher.
This high short interest was just recently around 20%. Did some shorts cover?
And if so, what will happen to AMC’s stock price next?
Iceberg Research Closes AMC Position
Iceberg Research analyst has closed their AMC positions, down 30%. For those who aren’t familiar with short selling, down 30% means they profited 30% from their initial entry.
I saw apes had this information mixed up. The analyst also took it to Twitter to explain this.
They stated, “we may open shorts later”.
What mad the analyst close their short position in AMC? It makes you wonder how many other small short positions could have closed too.
Iceberg Research closing their short position is extremely bullish for AMC shareholders.
It proves that AMC has set a new bottom. It’s retested the mid to high $30 range about three times now.
This bullish sign of strength could be the reason why this short seller decided to take profits now before another massive upswing.
Which if you ask me, was very smart.
AMC’s has very high short interest which means it has enough fuel to move the stock relatively high.
Iceberg Research mentioned they would possibly open short positions later signifying it’s something they would do when the price is significantly higher for them to profit from on the way down to new levels.
Do Stocks Go Up When Shorts Cover?
Activity from covering may create a chain reaction where other shorts begin to cover their positions.
Whether shorts close their positions with gains or losses, a stocks share price increases due to buying pressure from shares being bought back.
How Long Does It Take For A Closed Short Position To Settle?
According to the SEC, the settlement cycle is about 3 business days.
Iceberg Research announced they closed their position in AMC on Monday October 11th.
Meaning the transaction would not be reflected until mid to end of the week.
How much AMC’s share price moves up will depend on whether these short sellers were mainly small individuals or large financial firms.
Are Short Sellers Profiting From AMC?
Short sellers who entered during AMC’s runup are profitable. But not everyone is up. Large financial firms who shorted AMC earlier this year are still facing apocalyptic losses.
Don’t Short AMC Stock – They Can Soar To ‘Unimaginable Highs’, CNBC
AMC still has a very high short interest meaning there are original short sellers betting the stock will go low enough to finally make a profit.
Thing is AMC gets extremely uncomfortable when it gets pushed down a cent below $30.
The best strategy for short sellers holding losses would be to close now before AMC claims a higher level of resistance, resulting in even greater losses.
And for new short sellers, CNBC warned about unprecedented highs back in June even as it peaked saying, ‘resist the temptation’.
Because even those who are profitable on paper, another major upswing can change that in one day.
The high short interest in AMC is a ticking time-bomb due to the explosive effect a few short sellers can trigger from closing.
Iceberg Research for example took profits without the care of other short sellers, even though it means the price is subject to move up from such a move.
That’s the danger of short selling AMC, this simple update from the analyst could trigger smaller positions to close, ruining the play for other shorts holding their positions.
For retail, this would mean a surge in price action.
Retail Investors Are In It For A Short Squeeze Play
This is another advantage retail investors have over short sellers. Short sellers are paying a fee, must keep up-to-date with their margin requirements, and have no control over other shorts.
You could be short on AMC stock but if a financial firm closes due to a margin call, you could lose a massive chunk of your portfolio.
Retail investors continue to raise the bar regardless of AMC’s current share price.
The community continued to buy the stock at $50, $60, and $70.
That’s because retail’s conviction towards how much AMC is worth is beyond what short sellers can comprehend.
Profitable short activists are better off taking profits and getting in on this short squeeze play against market manipulators.
Both retail investors and short activists want to make money. A short squeeze would yield some of the biggest gains any party has ever seen.
Another Major Upswing Is Around The Corner
If you read my article on why an AMC rebound is sure to happen, then you understand the significance of patterns.
We’re seeing that as AMC’s short interest continues to climb, the play is set up for bigger upswings.
This is bad news for shorts holding the stock as new levels of resistance are being created during these upswings.
AMC’s short interest reached a high of 9% back in January when it topped $20 per share.
Short sellers jumped in and raised the short interest to 20% where the stock ran up to $72 per share.
After this runup, AMC’s short interest fell to 14.76% before continuing to move back up to it’s current percentage.
The original 9%-20% is an 11% increase. From 14.76% to the high of 21% we saw not too long ago is another 6% increase.
Here we can see short seller sentiment. Fewer of them are willing to get burned on this short squeeze play.
Short activists have the decision to close positions now while AMC’s share price is extremely close to it’s new base price.
Failure to do so and you may get caught in significant losses that are awaiting hedge funds and bigger short sellers alike.
It Takes One Major Upswing To Ruin Short Position Gains
How many waves can short sellers tolerate? Short sellers going long on their plays are burning cash passively from borrowing fees.
The next major upswing AMC has will set a new foundation.
The $30 range will no longer be AMC’s base price but rather $70-$80 respectively.
And we’re talking about the floor here, not AMC’s upswing peak. This next peak could very well reach hundreds of dollars from mere momentum pressure.
And although AMC’s share volume has decreased recently, we’ve seen this pattern happen right before retail and whales create massive buying pressure again.
It only takes one massive upswing to create a chain reaction of buying from both new retail investors and short sellers.
Both sides are looking at their strategies. It’s not costing retail investors anything to hold their stock.
Apes continue to buy when they have the means available. A community with a ‘why’ is much stronger than individuals trading for small profits on the way down.
It’s only a matter of time before larger financial firms begin taking profits from shorting AMC stock and leave smaller short sellers behind.
Or vice versa. AMC’s extremely high short interest is a ticking time-bomb.
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