On Sunday evening, Benzinga asked its followers on Twitter (NYSE:TWTR) what stock they’re most focused on this week. From the replies Benzinga selected one ticker for technical analysis.
@atif003gmailco1 (Atif Masood) responded to say he has been focused on AMC Entertainment Holdings, Inc (NYSE: AMC) since January 2021.
AMC Entertainment has failed to gain traction to the upside since March 15, when the stock began a parabolic rise from $13.17 to reach a high of $34.33 on March 29, before crashing over 71% lower to reach a May 12 low of $9.70.
Fluctuations have occurred in the stock between the $9 and $19 level over the 2 1/2 months since the last meteoric rise, but on July 26, AMC negated its uptrend and has since confirmed a downtrend.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify a downtrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the "trend is your friend" until it’s not, and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high, indicating a reversal into an uptrend may be in the cards.
The AMC Chart: AMC negated its uptrend by printing a lower low under the most recent high low of $14.71, which was printed on July 15. The stock then formed a lower high on Thursday at the $15.29 level, which confirmed a downtrend is in the cards.
- AMC may also be forming a bear flag pattern on the daily chart, with the pole formed between July 21 and July 26 and the upward sloping flag formed over the days that have followed. If the bear flag pattern is recognized, the measured move is about 24%, which indicates AMC could fall toward the $11.60 mark in the future.
- The flag of the bear flag pattern is forming within a rising channel pattern, which is considered to be bullish for the short-term. If bulls can step in and cause AMC to shoot up above the eight-day exponential moving average on the daily chart, it’s likely that the bear flag will be negated.
- Bearish traders want to see AMC drop down under the lower ascending trendline of the flag formation on higher-than-average volume.
- AMC has resistance above at $14.68 and $17.07 and support below at $12.22 and $9.90.
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