Craps are hitting Wall Street

You read on an internet trading forum that everyone is making a fortune with little squeezes. They are finding high interest short stocks and buying them like crazy until the shorts are forced to hedge by buying stocks. So you join in and buy, except it’s too late, all the shorts have been covered, and the price has crashed.

Can you get out before the crowd starts littering? What will you do if the powers that be are delisted from the stock due to “volatility” and you are stuck until it reopens 80% less?

Why not just go to Las Vegas and stop at any of the several decent craps tables the city has to offer. Your chances of making a profit are roughly the same, and in addition, the casinos will provide you with free drinks while you litter. The New York Stock Exchange doesn’t offer free drinks the last time I checked. Anyway, not on the ground.

Here are the hourly and daily price charts for 2 of the most watched “short-twitch” situations, both traded on the NYSE. While it is impossible to predict what might happen, it is relatively easy to identify trends and find support and resistance levels even with increasing volatility.

The AMC hourly price chart it looks like this now:

Today’s stock failed to lift the price higher than the previous peak near 72.5. After sinking to 37.50 in the morning, the buyers moved out. They took AMC back to 68 before another selling bout came and the stock closed at 51.34.

So the trading range is 72.5 to 37.5, all in one session. Need I say how unusual this is for a NYSE capital? This is how penny stocks used to trade, but these are actual dollar figures, not pennies.

Here it is AMC’s daily price chart:

You can see how the stock last month broke the January high of about 20. That straightforward quality starts to pick up speed this month and here we are. You don’t usually see a daily price range of 20 to 72.5 in just 2 months. This is a short phenomenal squeeze even though June volume levels have yet to get over the bullish burst from the end of January.

The Gamestop hourly price chart It looks like this:

The main thing here is the negative divergence in the Moving Average Convergence / Divergence Indicator (MACD) below the price chart. Although today’s peak is higher than the most recent peak, the previous peak, the MACD is lower. Red dotted lines indicate possible support and resistance levels. Note that volume appears to have recovered dramatically from early to mid-May.

Here it is Gamestop daily price chart:

Very different from the look of the AMC chart, this short-squeezed stock is progressively less compressed. Today’s peak of around 300 is less than the March peak of 350 and much less than the January peak just after 475. You can see how volume levels have dropped dramatically since the beginning of the year. Possible resistance and support levels for Gamestop are indicated by the red dotted lines.

This battle is between funds that sell stocks short and Internet forum groups that find those stocks too short and try to squeeze them out. And anyone else who wants to join. It is a new phenomenon that now affects more names and bigger names and is probably attracting the attention of regulators.

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