AMC Entertainment Holdings, Inc. (AMC) shares soared more than 200% during Wednesday's session amid an ongoing short squeeze.

Key Takeaways

  • AMC shares moved sharply higher amid an ongoing short squeeze following its $917 million capital raise to avoid bankruptcy.
  • Analysts believe that movie theaters could ultimately weather the storm, with B. Riley projecting a return to normalcy in 2023.
  • The stock broke out from two key resistance levels during Wednesday's session, but an overbought relative strength index (RSI) points to consolidation ahead.

Earlier this week, the company announced that it secured $917 million in equity and debt capital in order to stave off bankruptcy. Management estimates that AMC's financial runway has been extended deep into 2021, assuming that it will continue to make progress in negotiating lease payments and timelines with landlords.

B. Riley analysts also weighed in on the movie theater industry earlier this week, saying that the upcoming film slate is among the strongest in the industry for years and that it expects a full recovery by 2023. The firm reiterated its Neutral rating on AMC stock but raised its price target from $3.50 to $5.50 per share—a then-20% premium to the market price.

The capital raise sparked a rally in the stock and the subsequent short squeeze that accelerated into Wednesday. With about 39 million shares short and 1.5 days to cover, many short sellers have capitulated and sought to cover their positions, contributing to Wednesday's move higher.

Tip

A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock's price.

Chart showing the share price performance of AMC Entertainment Holdings, Inc. (AMC)

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From a technical standpoint, the stock broke out from prior highs of around $5.00 and $7.00 during Wednesday's session toward trendline resistance at $21.45. The RSI moved deeper into overbought territory with a reading of 95.15, but the moving average convergence divergence (MACD) remains in a strong bullish uptrend.

Traders should watch for consolidation above trendline support at around $12.00 over the coming sessions. If the stock breaks down from those levels, traders could see a move to support at around $7.45. If the stock breaks out, traders could see a move to fresh highs, although that scenario appears unlikely given overbought RSI readings.

The Bottom Line

AMC shares moved sharply higher after a capital raise sparked a short squeeze that has accelerated into Wednesday's session. While analysts have been optimistic about movie theater chains, the move to pre-pandemic prices will likely be short-lived given the overbought RSI reading and current analyst price targets.

The author holds no position in the stock(s) mentioned except through passively managed index funds.