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AMC Stock: A Test For Diamond Hands

Apes have been put to the test: can they hang on to their long positions in the face of 35% losses since early June in anticipation for the “mother of all short squeezes”?

At last check, AMC stock  (AMC) - Get Report was down 5% for the day on Tuesday, July 13. This is about to be the seventh day of losses in the past eight trading sessions – all of which worse than -3%. Another few cents lower, and AMC will trade below $40 per share for the first time in six weeks.

This is a test for diamond hands, traders who are committed to hold on to shares of the movie theater company. Can they maintain their cool and ride this turbulent period out, patiently awaiting the anticipated mother of all squeezes?

(Read more from Wall Street Memes: AMC Stock: Hot Topics On The Planet Of The Apes)

Losses are expected

Any trader or investor dreads the thought of losing money. But in the case of meme mania, the sharp ups and downs are to be expected, more so than in other cases.

The chart below shows the trajectory of AMC stock through 2021 so far, and the drawdowns from previous peaks in the past six and a half months. Sure, a 35% decline such as the current one seems painful.

But notice that the stock corrected as much as 70% in February and remained stuck 50% below the peak between late March and early May. Even then, early-year diamond hands and new traders that jumped in around that time still saw AMC price increase fivefold in the couple of weeks leading to June 2.

AMC Drawdowns From The Peak In 2021

AMC Drawdowns From The Peak In 2021

More shorts = more opportunities

The silver lining in AMC having declined so much lately is that momentum is on the side of short sellers. Short utilization, the ratio of borrowed shares relative to those available in the lending market, has reached a recent high above 90%. Trader Trey Collins noticed that this could be a bullish setup, as naked short activity might pick up.

Also, according to Seeking Alpha, number of shares shorted remains high, at 75 million (about 18% of the float). While off from the peak of 100 million in late May, bearish enthusiasm can end up helping the ape cause, should modest share price movement to the upside snowball into a short squeeze.

For it to happen, however, apes will need to stick together and fight off the urge to cap their losses. #AMCDay has been a trending topic on Twitter today but, with the stock being only the fifth most commented on Reddit in the past 24 hours, a bit harder of a push might be needed.

(Read more from Wall Street Memes: Like Richard Branson, SPCE Stock Surged And Turned Around)

Twitter speaks

Wall Street Memes has recently proposed the following question: how long will it take until AMC has its shot of heading to the moon? Below are the answers, most of them suggesting that some patience might be needed.

Follow Wall Street Memes on Twitter and leave your comment.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)