AMC is doing the thing again.
Not quite that thing – not the kind of triple-digit swings we saw during the middle of the pandemic economy. But AMC is still driving huge swings in trading activity and telling us something important about the stock market as a whole.
The company gained about 2.5% during the trading but fell by 10.5% in after-hours trading after it announced 517 million in new shares will be issued.
Now these won’t be normal shares. Instead, they will be preferred shares that will carry voting rights but don’t dilute AMC. These new preferred shares will trade under the symbol APE. This is a nod to the company’s fanatical online fans, who call themselves APES.
“Today we are rewarding and recognizing our passionate and supportive shareholders, both to our shareholders in the U.S. and internationally,” said CEO Adam Aron. Aron has been something of a hero to traders in the past.
That might be changing. After all, what drove a lot of AMC’s activity in the past was a supposed short squeeze that would be occurring. Traders held on to the shares irrespective of reports about the state of the company or future plans. There was the premise of a huge payoff that was seen as practically inevitable.
Of course, that would do nothing to help out the company itself. AMC’s biggest problem is a massive pile of debt. Naturally, the company wanted to sell off more shares in order to raise money to pay off this debt. But investors who wanted the big payoff absolutely refused to go along with this.
It seems the CEO may have found a backdoor approach to getting what he wanted.
“With the creation of APEs, AMC is deeply and fundamentally strengthening our company,” he said. “Given the flexibility that APEs will give us, we likely will be able to raise money if we need or so choose, which immensely lessens any survival risk as we continue to work our way through this pandemic to recovery and transformation.”
He might be right, but traders and the company could have fundamentally different interests here, at least in the short term. Traders profit if the supply of new stocks are choked off, while those interested in the long-term health of the company profit if the company can ditch debt.
This is a contradiction that you can’t really resolve through a purely fundamentals-driven approach. And to some level, it is present in every publicly traded company.
That’s why technicals are always necessary – the ruthlessly logical mathematics can cut through some of the more irrational factors taking place and expose what’s really going on.
This isn’t to say fundamentals don’t matter. After all, when the CEO even mentions the term “survival risk,” that’s something every trader needs to take into consideration.
But the lesson of AMC applies to all companies – there’s a lot taking place underneath the surface, and sometimes it isn’t as obvious as it is here.
Don’t trust purely to one approach. Combine fundamentals and technicals for a winning strategy.
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Keep Moving,
Any strategy that makes you money consistently is worthwhile.
Though many new traders believe that trading is primarily about indicators and tools, Chris maintains that it is at least 95% about emotional control.
This is especially relevant in this bearish, choppy market which has made the trading world extremely difficult.
Learn some pro tips to come back from your losses and stay in the game.
WORD ON THE STREET
GS Warns On Economy, DOJ To Indict ’45?, Musk Says Inflation’s Peaked
- Goldman Sachs Renews Doomerism – A group of Goldman Sachs (GS) analysts sounded a cautionary note on the current relief rally. “Without clear signs of a positive shift in macro momentum, temporary re-risking could actually increase the risks of another leg lower in the market rather than signal the end of the bear market,” they said.
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Elon Musk Warns Of Mild Inflation – Elon Musk warned of a mild recession that could last 18 months while speaking at Tesla’s shareholder meeting. However, he also had some good news for those worrying about inflation. “The trend is down, which suggests we are past peak inflation,” Musk said. “I think inflation is going to drop rapidly..
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Trump Facing Dual Threat – Sources report that President Donald Trump’s legal team is in communication with the Justice Department as the investigation into the January 6 riots continues. Rep. Liz Cheney (R-WY) is also continuing to crusade against ’45, even calling in her father Dick Cheney to cut an ad against the former POTUS in which he called him a “coward.” However, polls show Liz Cheney heavily trailing in the Republican primary.
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Report: Russian Economy In Crisis – A team of Yale University researchers reports that Russia’s “finances are in much, much more dire straits than conventionally understood” and that “business retreats and sanctions are catastrophically crippling the Russian economy.” The report also says Russia’s “domestic production has come to a complete standstill – with no capacity to replace lost businesses, products, and talent.
HOT SPOTS: What’s Going on in Geopolitics
- Saudi Arabia And United Arab Empires Promise More Oil If Needed – OPEC+ approved a small increase in production, disappointing the Biden Administration but at least providing downward pressure on oil prices. That said, Reuters reports that Saudi Arabia and United Arab Emirates could deliver a “significant increase” in oil product if needed.
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A Failure To Communicate – Norwegian consul Elisabeth Ellingsen is being kicked out of Russia after she was filmed on camera saying “I hate Russia.” She was complaining about service at a hotel, further insulting the Russians by saying, “I’m used to clean rooms, I’m from Scandinavia.” “After what happened, Elisabeth Ellingsen’s presence in Russia is impossible,” said the Russian Foreign Ministry. She’s certainly not the best diplomat.
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Orban Speaks At CPAC – Hungarian Prime Minister Viktor Orban received a warm welcome at the Conservative Political Action Conference (CPAC), one of the main gatherings of the American right. Addressing critics of his conservative government, the prime minister said “they want us to give up our zero-migration policy because they also know that this is the decisive and final battle of the future..
CUTTING EDGE: What‘s Happening In Tech
- Tesla Shareholders Agree To Three-For-One Split – Tesla (TSLA) shareholders approved a three-for-one split. The stock was up both during the trading day and after-hours. The approval was widely expected and investors seem to have been already anticipating it; the stock price was up 30% since the proposed split was first announced.
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Biden Administration Declares Monkeypox Emergency – The Biden Administration formally declared monkeypox a public health emergency. White House National Monkeypox Response Coordinator Robert Fenton said “this public health emergency will allow us to explore additional strategies to get vaccines and treatments more quickly out to impacted communities.
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Clubhouse Splitting Into… Houses – In a series of tweets, CEO Paul Davison said Clubhouse will be building a new model called “Houses.” “Communities need to be able to undergo mitosis as they grow – so they can split into new ones and the intimacy may scale,” he said.
FOR YOUR CONSIDERATION
Ever glance at a chart and immediately move on?
I used to do it all the time…
But I learned my lesson early on in my trading career when I saw those same charts go parabolic hours later.
What was I missing?
Don’t stick to just the daily chart – you’ll miss the key signals for action. Corey tells you how it works – and highlights a possible trade for you to act on right now.