AMC Entertainment Holdings, Inc AMC opened slightly higher on Thursday before retreating on below-average volume.
The declining volume hints at a consolidation phase that was likely to materialize as the stock is up almost 18% between Oct. 13 and Wednesday.
AMC’s consolidation is taking the form of an inside bar pattern on the daily chart. An inside candlestick is often followed by a continuation move 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 candlesticks and consists of a mother stick (the first candlestick in the pattern) followed by one or more subsequent candlesticks. The following candle(s) must be completely within the range of the mother bar and is referred to as the “inside bar”.
A double or triple inside bar can be stronger than a single inside bar. After breaking an inside bar pattern, traders should look for high volume to confirm the pattern has been caught.
- Bullish traders should look for inside bar patterns in stocks that are in an uptrend. Some traders may take a position during the inside bar before the break, while other aggressive traders will take a position after the pattern breaks.
- Finding an inside bar pattern on a stock that is trending down is crucial for bearish traders. Like bullish traders, bears have two options where to take a position to play the pattern break. For bearish traders, the pattern expires when the stock rises above the upper range of the parent candle.
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The AMC chart: AMC’s inside bar is skewed bullish as the stock was trading higher before the pattern formed and because the candlestick formed near the top of Wednesday’s mother bar. The inside bar could help AMC gather strength to regain the 21-day exponential moving average (EMA) as support, which the stock has tried and failed to do over the past two trading days.
- On October 21, AMC regained the eight-day EMA as support and the indicator has helped lead the stock higher since that date. If AMC manages to regain the 21-day EMA in the coming days, the 8-day EMA will breach the 21-day EMA, which would give bullish traders more confidence going forward.
- AMC is trading in an uptrend with the recent higher low being printed at $6.05 on Oct. 19 and the recent higher high being printed at $7.11 on Wednesday. If AMC breaks from Wednesday’s parent candle later on Thursday or Friday, the next higher high will be printed to indicate that the uptrend is intact.
- When AMC bearishly falls off the parent candle, bullish traders can watch for a bullish reversal candle like a doji or hammer candle that prints above $6.10 for a possible entry. Bearish traders want AMC to drop off the parent candle and then bullish volume to push the stock to print a lower low.
- AMC has resistance above at $7.47 and $8.51 and support below at $6.33 and $5.23.
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