AMC stock analysis: will the rally continue?

AMC stock is in a strong uptrend but could enter a one- to three-day correction shortly

Shares of AMC Entertainment (NYSE: AMC) have rallied over 63% since Monday as meme stocks make a comeback. Reddit’s WallStreetBets community is aiming to trap the short-sellers and force them to cover their shorts in a repeat of the massive short squeeze that propelled prices higher in January. According to HypeEquity data, the words “short” and “squeeze” are being increasingly used in the Reddit community for AMC.

The current rally is not backed by any major change in fundamentals. On Monday, Citi Research analyst Jason Bazinet retained his sell rating on AMC stock with a price target of $3.70. Bazinet’s bull case target for the stock is $5.15, far below the current levels.

The average analyst target for AMC stock is $5.11, 73% below Wednesday's closing price of $19.48. Will AMC stock go up further or is it time to book profits? Read our AMC stock analysis to find out.

AMC share price technical analysis: Weekly chart

The AMC share price has not broken below the 20-week exponential moving average (EMA) since the massive rally in January. This shows that bull traders have been accumulating at lower levels. 

The aggressive buying this week has pushed the price above the stiff overhead resistance at $14.52. However, the rally could hit a wall, as the bears are likely to mount a stiff resistance in the $19.69 to $21.36 resistance zone.

If the price turns down from this zone, a retest of the breakout level of $14.52 is possible. If bulls flip this level into support, the stock will make one more attempt to break above the zone.

A breakout and close above $21.36 could clear the path for a further rally to $26.03, followed by $31. The upsloping 20-week EMA and the relative strength index (RSI) in the overbought territory indicate advantage to the bull traders. 

This positive view will be invalidated if the price turns down from the current level or the overhead resistance and breaks below $14.52. That could pull the price down to the 20-week EMA.

The AMC stock price analysis of the weekly chart shows the momentum favours bull traders, but the rally is nearing a stiff resistance zone. 

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AMC share price technical analysis: Daily chart

The AMC share price had been trading in a large symmetrical triangle before breaking out of it on 13 May. This breakout indicated the resumption of the upmove.

Although bear traders tried to stall the rally on 18 May, they could not pull the price below the 20-day EMA. This shows a positive sentiment, where traders buy on dips. The pattern target of the breakout from the triangle is $25.24.   

However, the bear traders are unlikely to give up easily and will mount a stiff resistance in the overhead zone. During periods of strong bullish momentum, the pullbacks usually do not last more than three days. If the correction from the current level is shallow and short-lived, the possibility of a break above $21.36 increases.

The bear traders will have to sink and sustain the price below $14.52 to signal a possible change in trend.

AMC stock: buy or sell at these levels?

The AMC stock price is backed by strong bullish momentum but the rally has reached a stiff resistance zone. Therefore, traders may expect a one- to three-day pullback from the current levels. 

If the stock does not drop below $16 in the next couple of days, the uptrend could resume, with a possible target objective of $26.03 to $31. Alternatively, a break below $14.52 will signal the stock may have topped out in the short term.

Trade AMC stock – AMC shares price

AMC Entertainment Holdings Cl A
Daily change
Low: 4.56
High: 4.76

FURTHER READING: Canadian Pacific Railway stock analysis: time to cool down?

FURTHER READING: EPAM stock analysis: trend favours the bulls but fresh positions may be avoided

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