It’s incredible how much debt is allowed to accumulate in one company. The Evergrande Group owes approximately $300 billion and investors fear it could destabilize China’s financial system.
The massive selloff seen in the Hong Kong markets heavily influenced the New York Stock Exchange. If one of the world’s top economies crumbles, what will happen to the U.S markets, and what will it mean for AMC stock?
Welcome to Franknez.com – I saw some apes in the community wanted to hear my thoughts on how Evergrande could potentially affect AMC stock.
Lets get started!
A Preview To An Economic Downturn
Blood everywhere in the markets, and this seems to only be a preview to what’s coming. We received a glimpse into the future of the repercussions caused by overleveraged companies.
I think it is safe to say the feds are sweating bullets from this economic trailer. They’ve been pumping trillions of dollars into the system and loaning overleveraged institutions money that can’t even get paid back.
Large hedge funds have lost billions of dollars while short seller losses continue to accumulate in the millions. This disruption has been caused by retail investors creating buying pressure in heavily shorted stocks.
Two of the biggest ‘meme stocks’, AMC and GME, have raised havoc for financial institutions betting against AMC Entertainment and GameStop.
According to insiders within the retail community, TD Ameritrade has never seen this much shorting take place in the history of the markets.
The word is there is no guarantee that the Group will be able to meet its financial obligations, with the company hiring a team of outside advisors.
How Will Evergrande Affect The U.S?
We saw Evergrande’s slip affect the three main indexes in the New York Stock Exchange. The collapse of the Hong Kong markets would send shockwaves through global financial markets, including the U.S.
Just about every stock and crypto in our markets was significantly down after the Evergrande announcements. We saw massive liquidation in both of these sectors.
If China is unable to step in and protect its economy from financial collapse, the U.S markets will too experience a stock market crash. Though I think the NYSE is due for one anyway, with or without Evergrande.
The Great Uncovering
Hedge funds in the U.S have been suffering from losses all year due to retail investors buying heavily shorted stocks. Short sellers have been overleveraging their positions to drive the share price down no matter the costs.
They too have been digging too deep of a hole to close their overleveraged positions. With billions of short shares borrowed and zero positions closed, hedge funds are a threat to the stock market and U.S economy.
As the market demands for debt to be repaid, hedge funds will need to accommodate to margin requirements by liquidating some or all of their positions. In doing so, stocks such as AMC and GME will experience major upswings.
A stock market crash could force short sellers to get margin called, where their accounts will be forced to get liquidated if they cannot meet the margin requirements.
Closing out positions in AMC, GME, or any other momentum stock that has been heavily shorted, would cause a short squeeze. This is why retail investors holding AMC stock or GME stock should not worry about its current volatile share price.
The Share Price Is Psychological
If you’re holding a heavily shorted stock with negative beta, such as AMC or GME stock, chances are they will react the complete opposite to the rest of the market during a stock market crash.
So why was AMC and GME red during the Evergrande announcements? Shouldn’t both these stocks have been green oppose to its counterparts? One thing we have to keep in mind is that hedge funds borrowed more than 4 million short shares to drive the stock price down.
Both of these stocks’ performances were masked by continued shorting and psychological warfare. In theory, stocks with negative beta should have reacted the complete opposite.
We have seen multiple manipulation tactics in the markets to understand that hedge funds will use every resource possible to attack retail investors.
What Will Happen To AMC Stock If The Market Crashes?
Major selloffs from institutions holding AMC stock would take profits, resulting in the share price taking a massive dip. This is the opportunity seasoned retail investors in the ape community have been waiting for.
Massive buying pressure from the community would pump the price back up and could force shorts to cover their positions once and for all.
The reason I say AMC’s stock price is psychological is because the stock will continue to go down. This could very well be the dip before the rip.
And it will be 100% up to retail investors whether they choose to play offense or not. As for me, I’m taking advantage of the biggest dip yet to add to my position before hedge funds begin covering their positions.
However, follow what your conviction towards the stock tells you. Trey said it best when he says we are all adults and no one can decide what we do with our money but ourselves. “Have a plan.”
Prepare For The Challenge
I’m going to share my real thoughts with you on this short squeeze play with AMC. I am not selling my AMC stock and I am taking any massive dip that comes our way as an opportunity to increase my position.
It’s really that simple to me. What’s going to be challenging for new retail investors is seeing their investment drop little by little, every day.
What’s prepared me for this challenge is my conviction towards the stock. The data says it all and I don’t mind holding AMC through the winter.
The longer AMC shareholders hold the stock, the more money hedge funds lose. And although AMC stock could potentially face a steep drop, I know holding my stock is causing short sellers serious damage.
Should You Keep Holding AMC Stock?
When GME began skyrocketing, only a bunch were able to cash in some serious profits. These were the diamond hands who stuck to their convictions.
I can’t tell you to hold, but I can tell you that I’m going to hold. I don’t care what gets thrown my way or about what the people who’ve lost their conviction have to say.
See, at some point short sellers have to cover their positions. Whether that price point is at $40, $30, or even $10, no one knows. What I do know is that the retail investors who get to experience the MOASS will be those who held AMC stock the day shorts decided to cover.
And that’s good enough for me.