Is the AMC Stock Rally a “Last Gasp” for Bulls?

Stocks are struggling to break higher again this morning as the market focuses nearly all of its attention on AMC Entertainment (NYSE: AMC). As has been the case over the last week, the theater stock soared once more at the open. It managed to rise over 60% on the day shortly before noon.

The continued speculative blast may have been driven by a new shareholder rewards program, which entitles investors to shareholder-specific benefits and even a free tub of popcorn. Usually, this isn’t the kind of thing that the market is interested in.

But for AMC investors, it’s bullish accelerant.

“During my five-plus year tenure as CEO at AMC, I’ve taken great pride in the relationships I have forged with AMC’s owners,” said AMC CEO Adam Aron said in a statement this morning.

“With AMC Investor Connect, that effort in relationship building will continue apace even if our shareholders now number in the millions. After all, these people are the owners of AMC, and I work for them.”

And it comes at a good time after hedge fund Mudrick Capital (NYSE: MUDS) dumped a huge chunk of AMC shares. Mudrick was issued 8.5 million new shares in AMC’s latest capital raise according to an announcement from the company yesterday. Bloomberg News then reported that the hedge fund turned right around and sold all of its shares a few hours later, pocketing a gain of nearly $50 million.

It was a stunning blow to AMC bulls, who then punished Mudrick by driving down its shares over 15%. But the damage was temporary as AMC managed to finish out yesterday with a rally into the close.

Today, those that held saw their gains multiply. And it’s not just retail traders getting in on the action.

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Index-king Vanguard owns over 37.4 million AMC shares, or 7.6% of the company’s shares outstanding. Vanguard’s stake is now worth almost $2 billion. BlackRock (NYSE: BLK) owns more than 27 million shares (5.5% of total outstanding), worth over $1.4 billion.

Invesco Capital owns 6.6 million shares (1.3% of total outstanding), worth more than $343 million.

For the most part, this has been an institutional “payday.” The individual investor with the most AMC shares is CEO Adam Aron, with 758,747 (0.15% of total outstanding). By and large, retail investors haven’t been the biggest winners.

But they did drive the initial bullish hype, and according to Oanda analyst Edward Moya, small-time traders may push AMC even higher.

“The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow,” Moya wrote.

Fundamentally speaking, AMC’s future is less clear.

“We see some indications of strong pent-up demand from moviegoers ahead of what seems like a very strong film slate for this summer and through the holiday season,” explained Tuna Amobi, a stock analyst with CFRA Research, in late May.

“[With] Hollywood studios now looking to their own streaming platforms, we think AMC faces a steep uphill climb on the recovery path to a likely new normal that could compromise the theatrical window.”

Really, AMC’s surge has nothing to do with the actual theaters. It’s pure speculation, plain and simple.

And it’s the kind of thing that happens at the height of market bubbles. So, if you managed to get in on today’s “moonshot,” enjoy the ride while it lasts.

Because it’s only a matter of time until AMC comes crashing back down, possibly dragging the broader market with it.

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