Meme-stock favorites GameStop and AMC plunge 15% as key technical support fails and shares approach death cross
- Shares of
GameStopand AMC Entertainmentplunged as much as 15% during Monday trades.
- The meme-stock favorites have both experienced wild volatility this year after big short-squeezes.
- Both GameStop and
AMCare experiencing a deterioration in technical support levels that signals more downside ahead.
GameStop and AMC Entertainment became heavily owned by retail investors this year after big short-squeezes sent shares to sky-high prices of about $450 and $72, respectively. But as the dust settles from those big price moves, investors are forced to reckon with underlying company fundamentals that remain bleak.
More gamers are buying online or digitally downloading their games, removing the need to visit a physical video-game retailer like GameStop. Meanwhile, the prevalence of streaming content has led to a secular decline in movie theater attendance at chains like AMC.
Prior to the COVID-19 pandemic, the annual domestic box office generated about $12 billion in ticket sales. That number sank to about $2 billion in 2020, and is on track to hit about $4 billion in sales this year. That's a decline of about 70%, and yet AMC still trades at its highest valuation in years, at about $14 billion.
While investors in both companies are well aware of the worsening trends behind video-game retailers and cinema operators, they now have to also contend with deteriorating technicals.
GameStop plunged below its key horizontal support level of $150 on Monday, after falling below its 50- and 200-day moving averages last week. Now, a "death cross" in the stock appears imminent.
A death cross occurs when the shorter-term 50-day moving average of a stock crosses below the longer-term 200-day moving average. The signal is widely followed by technical analysts and traders. The lagging crossover indicator can help alert traders to securities that are solidifying their downtrend and are likely to experience a continuation, resulting in lower prices.
Meanwhile, AMC broke below its key horizontal support level of $30 last week, along with its 50- and 200-day moving averages. Both of AMC's moving averages are converging with a downward slope, suggesting a death cross can occur later this month if the stock doesn't quickly recover from its recent sell-off.
Not helping GameStop's stock price was a lackluster earnings report last week, which revealed larger-than-expected losses and a subpoena from the SEC. Meanwhile, AMC investors are still reeling from insider sales from its CEO and CFO, as well as the CEO's rejection of a shareholder idea to issue an NFT dividend.
Despite both stocks being down about 60% from their record highs, GameStop is up 645% year-to-date and AMC is up 1,004%.
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