AMC Entertainment Stock Pops Over Trend Line: The Bull, Bear Case

AMC Entertainment Holdings, Inc AMC was trading slightly higher on Tuesday after breaking up from a descending trendline and falling to back test the level as support.

A descending trendline acts as a resistance level and indicates there are more sellers than buyers even though the price continues to fall.

In order for a trendline to be considered valid, the stock or crypto must touch the line on at least three occasions. After that, the more times the trendline is touched, the weaker it becomes.

Bullish traders can watch for a stock or crypto to break up from the descending trendline and, if the break occurs on high volume, can indicate the downtrend is over and a rally may be on the horizon. It's possible the stock or crypto may fall down to back-test the descending trendline as support before heading higher again.

For bearish traders, “the trend is your friend” (until it’s not), and a touch and rejection of the descending trendline can offer a good short entry. A bearish trader would stop out of this type of trade if the stock or crypto broke above the trendline.

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The AMC Chart: On Tuesday, AMC back tested the descending trendline for a second day in a row and started to move up from the area on high volume and lower time frames.

If the trend line holds as support, Tuesday’s low-of-day may serve as a higher low, which would negate the stock’s downtrend and suggest a new uptrend could be in the cards.

• AMC’s most recent low was formed on May 31 at $4.38, at which point the stock formed a hammer candlestick and had a relative strength index measuring in at 33%. For technical traders, that indicated a bounce was likely to occur.
• If AMC trades higher over the next few days, the stock will regain the eight-day exponential moving average as support, which would give bullish trades more confidence going forward.
• If the stock runs into big bearish volume, and falls back under the descending trend line, the break up from the area will serve as a bull trap and a longer-term downtrend could be on the horizon.
• AMC has resistance above at $5.23 and $6.33 and support below at $4.31 and $3.56.

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