♟ Are the Feds Protecting AMC?

 
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Are the Feds Protecting AMC?
Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance
Pawn Chess Piece This week, AMC plunged until this one rule kicked in...
 
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Shares of movie theater chain, meme darling and company with a questionable future AMC Entertainment Holdings (NYSE: AMC) are tanking.

Look at the chart of the action so far this week...
 
AMC Daily Chart
 
You know what? It could be even worse!

Between 1938 and 2007, the SEC had a rule that shares of a company could not be shorted while the shares were falling. Under the rule, short sells could be placed only at a price above the most recent trade. This is referred to as the "uptick rule," and it meant you could not enter a short on a downtick.

The reasoning was that the rule would prevent a massive plunge in price based purely on momentum as opposed to hard facts. The "shoot now, ask questions later" effect could devastate the market, as selling begets more selling on Wall Street.

The SEC lifted the rule in 2007, and from 2008 to 2009, we saw a massive move lower in stocks. Many blamed the lifting of the rule for the massive sell-off.

In 2010, the SEC instated the "alternative uptick rule." This rule is triggered if a stock falls by 10% or more from the previous day's close. When this rule goes into effect, short selling is permitted if the price is above the current best bid. The rule is in effect for the rest of the trading session as well as the following day.

While this rule does not prohibit short selling entirely, it does slow it down. Options are still tradable, and that can pressure a stock, but moves down become more muted until the rule is lifted.

This week, AMC plunged and plunged until the rule kicked in. The day after it kicked in, shares slowly rose.

The effect was pronounced across all meme stocks, with the likes of GameStop (NYSE: GME), Virgin Galactic (NYSE: SPCE), Naked Brand (Nasdaq: NAKD) and Koss (Nasdaq: KOSS) all falling in tandem.

Action Plan: While this isn't the end of the meme stock craze, it's worth noting that what goes up with little fundamental reason will also come down with little reason. If you want to know how to trade moves like this - with expert insight and real-time actions to take - join me in The War Room by clicking here!

Yours in smart speculation,
Karim Rahemtulla Signature
Karim Rahemtulla, Head Fundamental Tactician
Monument Traders Alliance
 
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