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Can AMC Stock Weather This Storm In The Markets?

Retail investors are still holding onto AMC shares. Will that help AMC survive a bear market?

Flirting with a bear market, few stocks are winners these days. It's no different for meme legend AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report. So far this year, shares of the movie theater company are down roughly 60%.

Now, because AMC is a meme stock, its buy-and-hold investors aren't concerned about its business fundamentals. What effect will this have on AMC in these volatile markets?

Figure 1: Can AMC Stock Weather This Storm In The Markets?

Figure 1: Can AMC Stock Weather This Storm In The Markets?

(Read more from Wall Street Memes: GameStop Stock: 3 Reasons To Buy Before June)

Retail Investors Are Hanging On

Recently, Fox Business journalist Charlie Gasparino spoke out about the participation of retail investors in the stock market, mentioning meme stocks like AMC. According to him, the downturn in the markets is due to major hedge funds de-risking by liquidating their stock holdings and other higher-risk investments.

Gasparino believes the stock market will get even worse when retail investors bail. He pointed out that during the dot-com bubble, retail investors were the last to liquidate their assets.

AMC Is No Longer Serving as a Market Hedge

The market bearishness has also demonstrated that AMC stock is no longer serving as a market hedge, even though it has had a high negative beta — it has gone up when the broad stock market has gone down, and vice-versa.

AMC's stock has become increasingly correlated to the S&P 500, especially during the most bearish moments of 2022. In the chart below, notice how the black trend line starts around 4 in July 2021 but nearly plateaus around 7 and 8.

Figure 2: AMC vs. SPY: rolling 10-day movements.

Figure 2: AMC vs. SPY: rolling 10-day movements.

Watch Out! The Retail "Weirdos" Are Still Around

The vast majority of AMC's float is currently owned by retail investors. According to AMC CEO Adam Aron during a previous earnings call, excluding index funds, individual retail investors own more than 90% of AMC's total common stock.

This could explain the high share price levels sustained by AMC since the beginning of last year, when investors started piling into the meme stock. AMC shareholders have indeed been sticking to their buy-and-hold strategies.

What differentiates AMC and other meme stocks from the rest of the market is the reason why investors are betting on these stocks. They're not necessarily interested in business fundamentals, but rather in defeating short sellers by causing short squeezes.

Retail investors still have the power to do this. Short sellers continue to increase their positions, and nearly 20% of AMC stock is being shorted.

The unpredictability of what to expect from meme stocks is something that hedge funds have already understood. However, they are still playing with fire as long as a short squeeze may occur. 

(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)