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Is the Meme Trade With AMC Stock Over?

AMC Entertainment is moving lower despite resisting the urge to add to its secondary offering. Is the trade over for bulls?

AMC Entertainment  (AMC) - Get Report has been the leader of the so-called meme stock movement.

Shares exploded higher last month as bulls ignited another Reddit fave. While GameStop  (GME) - Get Report did well, it didn't lead the charge this time around as it had in the first quarter.

AMC, BlackBerry  (BB) - Get Report, Bed Bath & Beyond  (BBBY) - Get Report and others have enjoyed sharp upside rallies throughout the last month.

Shares of AMC moved higher in premarket trading Tuesday, up about 4% and grabbing investors’ attention after it altered its plans for its secondary offering.

Specifically, the company scrapped its plans to increase its secondary offering from 525 million shares to roughly 550 million shares. More importantly though, AMC won’t seek “approval for anymore issuance until at least 2022.”

Less supply of stock should bode well for the stock price, but bulls aren’t seeing it that way, with shares now down about 4% on Tuesday.

That’s either due to disappointment that the company isn’t raising more capital (even though the increased supply of stock should weigh on the stock price) or an indication that the meme trade is losing strength.

Trading AMC

Daily chart of AMC stock.

Daily chart of AMC stock.

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AMC stock was clearly finding it difficult to gain traction above $60. Despite eclipsing this level in 10 separate sessions last month, the stock only closed above $60 twice.

Even though shares were putting in higher lows, the 10-day and 21-day moving averages were guiding it higher. So was uptrend support.

However, those observations have been changing. The stock closed below its key short-term moving averages on Thursday, then gapped down on Friday briefly breaking uptrend support.

Now the stock is pushing below support again on Tuesday - the first trading day this week - after being rejected by the 10-day and 21-day moving averages.

Trading near $50 now, the real level to watch is $47.77, which is last week’s low. If AMC stock takes out that mark and can’t reclaim it, we could get a larger move to the downside.

Specifically, it’s possible that the 10-week moving average would be in play. Below that and the gap-fill level near $33.50 is in play, along with the 50-day moving average.

While these seem like large drawdowns, keep in mind that this stock was trading below $10 in May.

On the upside, we need to see the bulls reclaim the 10-day and 21-day moving averages. It’s as simple as that.