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Trading the Explosive Rally in AMC Entertainment - How High Can It Go?

AMC Entertainment continues to rip higher as bulls put on the short squeeze. How high can the stock go? Let's look.

AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report, GameStop  (GME) - Get GameStop Corporation Report and others are back at it. These Reddit stocks have been red hot and are starting to squeeze higher with strong upside rallies.

As these so-called meme stock leaders fetch a bid, they’re dragging others higher too.

Virgin Galactic  (SPCE) - Get Virgin Galactic Holdings, Inc. Report - which had its own flight-related catalyst - Rocket Cos.  (RKT) - Get Rocket Companies Inc. Class A Report, BlackBerry  (BB) - Get BlackBerry Limited Report and others have been enjoying some strong rallies.

Beyond Meat  (BYND) - Get Beyond Meat Inc. Report has been trading well too, a stock that Jim Cramer said would be the next stock to rocket higher.

However, AMC has been the undisputed leader in the recent move.

While GameStop sparked the first major short-squeeze trade earlier this year, it’s up “just” 45% over the past five days. While impressive, that pales in comparison to AMC, which is up 175%.

Let’s look at the charts to see what’s going on with this one.

Trading AMC

Four-hour chart of AMC stock.

Four-hour chart of AMC stock.

A few weeks ago, I pointed out that AMC stock was struggling with the 61.8% retracement near $14.60. In multiple trading sessions, it simply couldn’t push through.

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However, there were positives. For instance, AMC broke out over the 50-day moving average, as well as the April high at $12.22.

Even better though, the stock held these measures as support when it faded from the 61.8% retracement. That set up a beautiful buy-the-dip pullback, as shares soon rotated back to the highs and then took out the 61.8% retracement with force.

That sparked a series of upside gaps. Shares paused briefly near the prior highs from January, as you can see on the four-hour chart above.

But on Thursday, the stock again erupted higher, climbing more than 50% at one point in the day to hit the 161.8% extension near $30.

So now what?

Shares again burst higher to another key extension on Friday, that being the two-times range extension. However, AMC stock is also fading hard from that mark. If AMC can take out Friday’s high, then the 261.8% extension is certainly possible, up near $45.

How can we say it’s not possible after the last few days of price action?

The divergence on the Williams %R reading is a bit concerning, but I’m not going to step in front of a short-squeeze freight train. Profit-taking is one thing, selling short is another.

On a dip, let’s see what level comes in as support. I would really like to see $30 or $25 hold. But even more, I want the 10-day moving averages on the daily and four-hour charts to be support, along with $20.