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AMC Stock Surges: Is This The Big Squeeze?

On July 20, AMC shares climbed nearly 25% – impressive gains for most other stocks, just another day at the office for the apes. Wall Street Memes debates whether this is the beginning of the MOASS.

AMC stock  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report bulls had a day of relief on Tuesday, as they saw the share price soar about 25% after weeks of painful declines. Following positive developments coming from CEO Adam Aron, momentum quickly shifted to the bullish side.

Could this be the beginning of the MOASS – apes’ long-awaited “mother of all short squeezes”?

(Read more from Wall Street Memes: 2 Meme Stocks On The Edge Of A Short Squeeze)

Good news from the business

Bullishness on Tuesday may have been triggered by CEO Adam Aron. He announced long-term leases on two of the top five theaters in Los Angeles and added that others are coming soon.

The CEO's statement supports AMC's optimism about the reopening of the economy and the expected recovery of the business in 2021. See tweet below:

In addition, Adam Aron has been elected Chairman of the Board, another title to go along CEO and President. The ape community seems to like the executive – especially after his decision not to issue more stock in July – and may have interpreted the news as positive.

(Read more from Wall Street Memes: AMC Stock: Is CEO Adam Aron Doing The Right Thing?)

Apes go bananas

Things have started to look better for the apes. Despite the sharp share price drop from early June levels, buzz around AMC stock on Reddit and elsewhere (a key condition to keep short sellers on their heels) has not fazed. Also, anecdotal evidence around AMC’s 2021 recovery keeps surfacing.

Some of the most optimistic apes continue to believe that the minimum target price for AMC is a hefty $100,000 per share. The thesis is that aggressive short selling practices, including the use of dark pools and naked shorting (a controversial claim, to say the least), will set the stage for a short squeeze in the face of strong demand for the stock.

The 25% single-day spike in share price may have been the encouragement that some needed to further commit to the cause of the “diamond hands”.

MOASS still to come?

That said, a bit of perspective is needed here. First, 25% gains in one day is impressive at first glance – but remember that AMC share price has only returned to last Monday’s levels. For a MOASS to take shape, one strong day of gains is only a first step.

Also, positive news on the business front had already surfaced recently, but it did not lead to a sustainable rally in share price. Remember that, a few days ago, AMC broke audience records in theaters, but the stock did not gain support in the following couple of trading sessions.

Lastly, shorts seem to have largely held on to their positions so far. Short interest of 14% and utilization rate of 87% (data from Ortex) are consistent with previous weeks during which AMC stock headed lower. On the other hand, high short activity also means that the possibility of a squeeze is very much still on the table.

Plenty of upside and downside potential

Apes have reasons to celebrate: from positive business developments to continued ape community engagement and a big Tuesday of gains to help offset weeks of pain. They should not forget, however, that partaking in meme mania involves substantial risks that should not be ignored.

A few days ago we wrote about the downside and upside potential in AMC stock: apes can just as easily win big or see their capital head towards zero. Set expectations accordingly.

Twitter speaks

We have recently asked AMC traders on Twitter what they thought could lead to a short squeeze in this stock. Below are their answers.

(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)