AMC Entertainment Holdings, Inc (NYSE: AMC) opened slightly higher Thursday before declining on lower-than-average volume.
The decreasing volume indicates a period of consolidation is taking place, which was likely to happen because the stock surged almost 18% between Oct. 13 and Wednesday.
AMC’s consolidation is taking place in the form of an inside bar pattern on the daily chart. An inside bar is often followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
The AMC Chart: AMC’s inside bar leans bullish because the stock was trading higher before forming the pattern, and because the candlestick was forming near the upper range of Wednesday’s mother bar. The inside bar may be helping AMC to gather strength to regain the 21-day exponential moving average (EMA) as support, which the stock has tried and failed to do over the last two trading days.
- On Oct. 21, AMC regained the eight-day EMA as support and the indicator has helped to guide the stock higher since that date. If AMC is able to regain the 21-day EMA over the coming days, the eight-day EMA will cross above the 21-day, which would give bullish traders more confidence going forward.
- AMC is trading in an uptrend, with the most recent higher low formed on Oct. 19 at $6.05 and the most recent higher high printed at the $7.11 mark on Wednesday. If AMC breaks up from Wednesday’s mother bar later on Thursday or on Friday, the next higher high will print to indicate the uptrend is intact.
- If AMC breaks down bearishly from the mother bar, bullish traders can watch for a bullish reversal candlestick, such as a doji or hammer candlestick, to print above $6.10 for a possible entry. Bearish traders want to see AMC break down from the mother bar and then for increasing bearish volume to cause the stock to print a lower low.
- AMC has resistance above at $7.47 and $8.51 and support below at $6.33 and $5.23.
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