AMC stock should get short-term pop, but long term it is set to drop

AMC stock (AMC Entertainment) closed up on Thursday, and Friday could see more gains for the meme stock favorite as investors look to close out positions and end the week positively. Friday is also option expiry time, and liquidity has been terrible. Net options expiry should be on the buy-side this time, and coupled with poor liquidity should help stock markets take a leg higher. AMC should, therefore, benefit from some improved sentiment. This could continue now that we appear to be at peak fear levels after Walmart (WMT) and Target (TGT) reported this week. Retail investors have taken in some harsh lessons this year as the stock market turns south and we still feel more pain is on its way for long-term AMC holders.

Also read: GameStop jumps higher as Apes celebrate Melvin Capital’s downfall

AMC Stock News: National Cinemedia stake surprises

An interesting side note being circulated by traders this morning is that AMC has taken a stake in National Cinemedia (NCMI). The latest SEC filing shows AMC now has a stake of 6.8% in the company. National CineMedia is a good fit for AMC as the company provides advertising and marketing in cinema theatres. AMC did previously hold a stake in National Cinemedia back in 2018. 

AMC Stock Forecast

We are forecasting a short-term bounce here for AMC, but unfortunately it will be long-term pain for this one. The short interest has recently spiked up a little bit. Nothing to get too excited about as the liquidity is now so much higher, so the days to cover means a short squeeze is not going to happen any time soon. A bit more risk-on sentiment would see some of those shorts likely covering and so could help short-term momentum.

AMC did not quite get to our support at $8.95 and is now back at the pivot of $13. If AMC can hold this $13 pivot, it may then set up a move to $21 if conditions stabilize and risk appetites improve slightly. AMC and many other consumer stocks have fallen sharply this year. We are currently pricing in a 50/50 chance of a recession in the US, and stocks have repriced sharply lower. This is notably the case with consumer discretionary after the Target and Walmart meltdown this week.

For now, we may have overpanicked. This is our rally thesis. More detail may bore you, but sentiment and positioning are at extremely low levels from CNN Fear and Greed, AAII and Investors Intelligence. These often lead to counter trend rallies, but are short-term in nature.

Longer term though we see the effects of inflation hitting US consumers hard, and AMC will suffer. Walmart already pointed out that consumer behavior was shifting to lower-end goods with high margin discretionary spending taking a hit. AMC sits in consumer discretionary spending. If this falls, then AMC will be in big trouble with its debt pile. It has several deferred lease payments and debt repayments due in 2023 and 2024. It will need to raise finance. It will struggle to do so in fixed income markets as its debt is trading at junk status. The 2026 bonds are yielding over 20% and trading at less than 70 cents on the dollar. That is default stuff. AMC owes $272 million in rent and has upcoming refinancing due. AMC said in its latest earnings it is burning $223 million per quarter. Its cash pile from stock sales will last about a year at that rate. Investors have already rejected more share dilution, so options will be limited. 

AMC stock chart, daily

---