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Did Reddit Fuel GameStop's Massive Stock Surge?

The popular forum WallStreetBets bet on GameStop, and investors went all in.

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This story originally appeared on MarketBeat

For a stock that set an all time low during the first week of 2021, January is actually turning out to be a pretty ok month for cinema giant AMC Theatres (NYSE: AMC). Investors will be hoping for a return of some kind of stability this year after buckets of volatility last year saw shares whipping up and down.

Johnny Louis | Getty Images

They had to watch the stock fall more than 70% twice in a year as movie theatres found themselves on the front line of the pandemic, while they experienced three triple digit percentage moves to the north as well. This latest move, which has shares up more than 60% on the month, has been underpinned by the highest daily volume numbers the stock has ever seen. Last week, 770 million shares traded hands, a whopping 5 times and some change higher than the previous record of 145 million set last May.

Meme Stock

Fingers have been pointed at users of the popular Reddit forum WallStreetBets for driving the hype around what they’re calling the latest meme stock. Shares of GameStop (NYSE: GME) are up a phenomenal 400% thanks to a Reddit fuelled short squeeze that has been getting plenty of headlines. Eager to get in early on the next meme stock, risk hungry investors have been hunting for names that have been beaten down and have high short interest percentages. Though not on the same level of Gamestop’s 150% short interest, AMC’s 25% obviously hasn’t gone amiss.

Aside from all this new retail trader attention, which is doing shares no harm at all, there are some fundamental and technical facts in play that help the bull case. Last week it was announced that AMC had raised $100 million through new secured debt which is a significant addition to its war chest and will boost its liquidity. With theaters closed for much of last year, it was sorely needed and comes on the back of reports from earlier this month that AMC’s UK unit, Odeon, has entered talks to raise as much as $400 million. Towards the end of last month, the company raised $150 million from a 50 million share stock offering.

Related: 7 Tips To Building Your Own Authentic Community on Reddit

Unpricing The Worst Case Scenario

CEO Adam Aron has said they’ll need upwards of $750 million to get through 2021, which means these recent updates have gone a long way towards that goal being hit. The likelihood of a doomsday event like bankruptcy grows smaller with each dollar raised, so unsurprisingly the short sellers of AMC must be getting nervous.

Any technically minded investors would have been watching AMC shares trading down to what’s become some fairly solid support at $2, which is where the bears ran out of steam multiple times last year. From a risk / reward point of view it was a particularly attractive entry point, but even with the recent pop there’s still opportunity to be had.

AMC is by no means out of the woods but the doomsday scenario that was being priced into shares is starting to be unpriced, which means aggressive moves upwards are the order of the day. Based on the action of the past twelve months, we know shares can pop 200% and 300% in a matter of weeks so it wouldn’t take a lot for that kind of a fire to be lit here again.