AMC Forms Bullish Pattern, Institutions Increase Short Positions: Will Shorts Get Smoked?

The battle between theater companies such as AMC Entertainment Holdings Inc AMC and streaming giants such as Netflix Inc NFLX and Walt Disney Co DIS heated up this week at CinemaCon, the National Association of Theatre Owners’ annual convention. A number of film and exhibition industry leaders spoke out against releasing new films simultaneously in theatres and on home viewing devices.

The Apes who have rallied around AMC’s stock certainly don’t believe theatres will fall out of favor anytime soon. They also believe the stock is being held down by institutions that are short on the stock both legally and through an illegal trading activity known as naked shorting.

Institutions have increased their short positions on AMC Entertainment recently. Of AMC’s 511.47 million share float, 92.42 million shares (meaning 18.07%) are held short up from 79.75 million in July.

See Also: How to Buy And Sell AMC Stock

The AMC Chart: After trading sideways for most of July and August, AMC shot up 50% between Aug. 20 and Aug. 24 before hitting the $48 level and entering into consolidation. The rise paired with the consolidation has formed AMC’s stock into a potential bull flag pattern on the daily chart with the flag created Wednesday and Thursday.

One concern regarding the bull flag formation is the upper wicks on Wednesday’s and potentially Thursday's candle. Bulls will want to see AMC close Thursday’s trading session near the $43 level, which will cause AMC to print a doji candlestick. This could indicate a reversal back to the upside.

AMC was also due for a higher low after making a higher high on Aug. 24. Anything over the $32 level is a higher low and unless AMC drops below the level its uptrend will stay intact.

Bulls can feel confident Thursday’s move lower is consolidation as opposed to bearish pressure due to lack of volume. When a stock breaks up, bulls want to see big bullish volume and when a stock breaks down bears want to see big bearish volume to feel confident in the move.

AMC is trading above the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading above the 200-day EMA, which indicates overall sentiment is bullish.

• Bulls want to see continued consolidation on low volume and then for big bullish volume to come in and break AMC up from the flag. AMC has resistance above at $46.55 and $52.97.
• Bears want to see big bearish volume come in and drop AMC’s stock down below support of the eight-day EMA, which would negate the bull flag. The stock has support below at $39.07 and $31.81.