AMC Entertainment Holdings, Inc AMC Thursday opened slightly higher before falling on lower-than-average volume.
Declining volume indicates a period of consolidation is underway, which is likely because the stock rose nearly 18% between October 13 and Wednesday.
Consolidation in AMC takes place in the form of a bar pattern inside the daily chart. An inside bar often follows a continuous movement 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 at least two candles and consists of a parent bar (the first candle of the pattern) followed by one or more candles. The subsequent candle(s) must be completely within the range of the parent bar and each is called an “inside bar”.
A double or triple inside bar can be more powerful than a single inside bar. After breaking an inside bar pattern, traders need to watch for higher volume to confirm that the pattern is recognized.
- Bullish traders will want to look for bar patterns inside of stocks that are trending higher. Some traders may take a position within the inside bar before the break, while other aggressive traders will take a position after the pattern breaks.
- For bearish traders, finding a bar pattern inside a downtrending stock will be key. Like bullish traders, bears have two options on where to take a position to play the breakout of the pattern. For bearish traders, the pattern is canceled if the stock rises above the upper range of the parent candle.
Need a straightforward analysis? Find me in the BZ Pro Lounge! Click here for a free trial.
AMC Chart: AMC’s inside bar is higher as the stock traded higher before the pattern formed and candles formed near the upper range of the mother bar on Wednesday. The inside bar is helping AMC gather strength to retake the 21-day exponential moving average (EMA) as support, something the stock has tried and failed to do over the past two trading days.
- On October 21, AMC retook the eight-day EMA as support and helped the index take the stock higher from that date. If AMC can retrace the 21-day EMA in the coming days, the eight-day EMA will cross above the 21-day, which will give high confidence on the move ahead.
- AMC is trading in an uptrend, with the most recent high low set at $6.05 on October 19th and the most recent high printed on Wednesday at $7.11 mark. If the AMC breaks the Wednesday mother bar on Thursday or Friday, it will print the next higher high to indicate that the uptrend is intact.
- If AMC breaks out of the parent bar, bullish traders can watch for a bullish reversal candle such as a doji or hammer candle to print above $6.10 for a possible entry. Bearish traders want to see the AMC break out of the parent bar and then increase bearish volume causing the stock to print lower.
- AMC has resistance above $7.47 and $8.51 and support below at $6.33 and $5.23.
See also: Short Seller Carson Block Says Muddy Waters Is Watching This Metric Closely With Historic Gamestop Short Squeeze
Photo via Shutterstock.