‘Don’t Be That Sucker:’ Merchants Warn Towards Becoming a member of AMC Rally

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The staggering rise of AMC Entertainment Holdings Inc. as a result of the frenzy of Reddit fans is increasingly unsettling professional market participants.

After retailers took stocks of the unprofitable cinema chain to record highs, bringing this year’s price gain to nearly 3,000%, investors and strategists are warning that the chances of burning hard and losing money on this trade are now very high.

“The Reddit train will find new targets and the revenge on short sellers will most likely continue,” Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said via email. “This has become a game. Investors who don’t have money to afford to lose should stay away from hot stocks. When a lot of people crowd into a company, they are likely buying it at an inflated price, and as we’ve seen, rapid price rises are often followed by rapid price falls. “

On Thursday, the Reddit-powered rally showed no signs of running out of breath. AMC was up 18% in pre-trading hours to $ 73.80 at 6:11 a.m. in New York.

Here’s what market participants say about the risks and outlook for AMC stock:

Joachim Klement, strategist at Liberum:

  • “In the meantime, many studies have been carried out on the GameStop madness in January, and all of them point out that retailers can skew prices in the short term, but on average they don’t make any money with it and even lose money in the process.”
  • “Institutional investors should ignore these meme stocks and wait for the stock price to calm down. As in any bubble, retail investors will eventually run out of people willing to buy into the hype, whereupon the bubble bursts and the last ones who hold the bag have to bear their losses. “
  • “AMC and other meme stocks are a case of people trying to find a sucker to buy into the hype that is stealing your overvalued stocks. Don’t be such a fool. “

James Athey, Investment Director at Aberdeen Asset Management:

  • “It just scares me. To me, it just goes to show how you know this is an extreme result of markets that have just been so overly manipulated and investors have been almost forced to play the game of central banks and liquidity instead of fundamental analysis for a number of years, and here it leaves us. What are the knock-on effects for other asset classes? Well, right now I don’t think they’re huge. They get huge when some of these rather frothy reviews inevitably blows out. “
  • “People shun any notion of fundamental analysis or valuation in favor of the idea that momentum is the biggest driver and / or business models that are very difficult to price or companies that are trying to change their business model dramatically.” To take into account that the world is becoming more digital. There are investors who are willing to judge these corporate decisions not for perfection but for perfection, and that is obviously a self-sustaining and fulfilling prophecy. “

Marija Veitmane, Senior Multi-Asset Strategist at State Street:

  • “This meme mania basically tells me there is a lot of cheap money out there.”
  • “Other implications are what happens to the market. The way of the fewest resistance is that this money and the cheap financing in the financial markets are reallocated or even spent and invested in corporate profits. “
  • “Assets will become more expensive, tangible assets, financial assets – this is happening right now – until interest rates rise significantly, we will probably see an appreciation in the financial markets, so we draw the conclusion.”

Ipek Ozkardeskaya, Senior Analyst at Swissquote:

  • “Basically, AMC is not a thriving company, or at least it is not now, and in my opinion there is little chance that the current and future business environment would ever warrant a market cap of $ 33 billion.”
  • “Is the price high enough? Do we have to expect a correction? In relative terms, it is. Trend and momentum indicators are obviously flashing red. Rationally, the only possible direction from here is an equally impressive downward correction. “
  • “Wall Street is not going to be easy to miss out on AMC as shorts keep coming and the higher the price, the higher the profits on a short trade. But you are still cautious with a short position, especially in such a wild market, as the losses on a short trade are simply unlimited. “

Alberto Tocchio, Portfolio Manager at Kairos Partners:

  • “It’s definitely a crazy situation that affects not only the markets but also hedge funds in terms of short leg pain. The performance pain of hedge funds is increasing again, similar to January. I believe that the current abundance of liquidity and savings creates these bubbles. “
  • “I think we’re going to have to deal with this speculation for a while, and unfortunately, in an already complex market, this creates an added difficulty for hedge fund managers.”

Ricardo Gil, Head of Asset Allocation at Trea Asset Management:

  • “These jumps are not supported by any fundamental analysis, they are cracks that open up in the system due to excess liquidity when investors look for stocks that they know will be forced to buy like hedge funds. The problem will be when one of these situations leads to systemic risk. “

Keith Temperton, a trader at Forte Securities:

  • “To me it looks like a classic speculative bubble.”
  • “It’s the power of the Reddit Brigade that is back.”

Charles-Henry Monchau, Chief Financial and Chief Investment Officer at FlowBank:

  • “The world is full of liquidity. And that creates bubbles and extreme situations like we’re seeing now with these retail sentiment names. The meme stock phenomenon is returning with a vengeance after a two-month hiatus, and this could actually lead to some volatility in the overall market. “