AMC EntertainmentUpdated AMC Technicals Point Lower: Target = $13-15
Since Feb. 15, 2022, I have been averaging into a bearish position on AMC. It’s been tough to hold, as AMC's price action makes any trade difficult to hold (it whipsaws regularly even while trending higher / lower). It has been rising against the position to $20 (where I added to the position) it began falling further.
I'm using a simple options trade for this: Long AMC 2/25/22 17 P. Yes, I realize this is short and theta decay remains high given a week till expiration. My conviction is a little higher, and the trade so far is starting to work. Cut losses if the markets begin to turn around decisively. Today, AMC fell about -5% to 18.00, and the position has recovered somewhat from 2-3 days ago when I first started entering it and it is almost in the green. My average put cost is .77 per K (for $77 per K after applying the 100 multiplier).
Supporting the trade is strong technical evidence of bearish potential. The following are some of my technical analyses:- The major indexes are weak and still experiencing bearish price action / structure / momentum. Small caps are especially weak (AMC’s market cap is now under 99B and falling). The Russell 2000 (IWM) formed a large head-and-shoulders pattern over the past couple months, and in January 2022, it broke downward from a long-term sideways trading consolidation.
- A daily squeeze exists (volatility compression using Bollinger Bands and Keltner Channels as a gauge) with positive momentum. But the positive momentum reflects the last week’s rally back to $20 from January lows around $13-14. But given the other technical evidence, the daily squeeze should fire short. E.g., the 130-m squeeze is firing short and the 4-hour squeeze (shown above in the far-right panel) is firing short.
- Weekly Stochastics support a downtrend. The %D and %K lines are trending below 70 and have bounced, offering a good entry point.
- A parallel downtrend channel can be constructed I will post that downtrend channel below. When AMC hit $19-$20 on Feb. 15-17, it broke the upper channel line, but then failed and turned lower each day to re-enter the channel. This failed breakout above the channel signifies upside exhaustion for the bounce, showing that rising price fail to hold above downtrend resistance for any length of time.
- EFI shows a good entry point for a downtrending stock. 5-EMA EFI rose briefly above zero (barely) and then now is heading back below zero.
Chande momentum on the daily chart is turning negative and crossing below its EMA. On intraday time frames using 195-m and 130-m charts, Chande momentum oscillator is firmly bearish, trending lower below zero.
I'm using a simple options trade for this: Long AMC 2/25/22 17 P. Yes, I realize this is short and theta decay remains high given a week till expiration. My conviction is a little higher, and the trade so far is starting to work. Cut losses if the markets begin to turn around decisively. Today, AMC fell about -5% to 18.00, and the position has recovered somewhat from 2-3 days ago when I first started entering it and it is almost in the green. My average put cost is .77 per K (for $77 per K after applying the 100 multiplier).
Note
Here is the downtrend channel referenced in the above post. Key support levels are shown in the highlighted rectangles. Note
After posting this idea, AMC fell about 16.4% from 17.90 to 14.96. Then it bounced after Feb. 24 into early March but never recovered, failing at key resistance levels around 19.43. Obviously, it has fallen again with the broader market, and it remains squarely within one of the weakest sectors. At this point, I am not longer using more aggressive options strategies, e.g., long puts or put debit spreads as the risk of a bounce or mean reversion becomes much higher the more it becomes extended to the downside.However, I do believe more downside is likely. In the short run, $12-$13 seems entirely possible. I am using a call credit spread with strikes of $12 and 14. I sold it today for about $1.82 per spread, which leaves me with about $18 of risk per $182 of reward potential. I'm not recommending this trade as everyone should consider their own risk, financial situation, and experience before choosing a particular trade. But I am sharing that additional downside is likely enough for me to put on another trade for another leg lower this week. Best wishes!
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SquishTrade
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.