AMC Stock: Retailers Hand Hedge Funds Losses

AMC Entertainment Holdings (NYSE: AMC) is a stock that I’ve been following for several months now, and the blatant manipulation taking place surrounding the ticker is something I’ve personally never seen before. 

Well, I’ll take that back. 

Like most investors, I was oblivious to the power hedge funds had over the market. So, while I saw the manipulation in the past, I didn’t realize what was actually happening. What I thought was that the market was a balanced system with regulatory oversight that stopped manipulation from taking place. As a result, the hedge fund-led declines of the past didn’t show up on my radar as anything wrong. 

Nonetheless, what’s happening surrounding AMC stock put the bullhorn on the issue, and it’s important that investors understand not only what’s going on, but what this means for the US economy and the fact that reform needs to take place, sooner, rather than later. 

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Hedge Fund Manipulation Of AMC Stock

There’s no question that there’s heavy short interest on AMC stock, nor that hedge funds are leading the charge when it comes to shorting the stock. For those of you who don’t know what that means, here’s a quick rundown:

  • A short position starts when an investor, in this case large hedge funds, borrow shares of stock from other investors that are long. 
  • The borrowed share is then immediately sold into the market at the current price. 
  • But these shares need to be returned. So, the goal is for the stock price to fall. 
  • When the stock price does fall, shares are bought back and returned to their rightful owner, with the difference between the high selling price and the low buyback price being the short seller’s profit. 

I’ve known about short selling for some time now, and how heavy short selling can lead to manipulation of price. After all, the market is all about supply and demand, and when big blocks of shares are sold short, synthetic supply is created. 

But as I dug in deeper, with the help of several readers that have sent me tips (thanks everyone!!!), the level of manipulation proved to be something I didn’t even think was possible in the United States stock market. 

The Manipulation Thickens

Surprisingly, hedge funds are breaking the law, and don’t seem to care about consequences because they’ve survived so long without any! So, how are they breaking the law?

Secretively Paying For Skewed Opinions

There are several posts on message boards surrounding the idea that hedge funds are paying the experts retail investors follow to spread concerning information about AMC. Interestingly, none of these posts seem to have a disclosure, letting the retail community know that the content was paid for. 

That’s illegal my friends. 

When it comes to Wall Street, if you’re paid to publish an article, social media post, or any other content online, the law stipulates that you have to publish a disclosure stating that you were paid and naming the party that paid you. 

Hedge funds are getting away with this by offering these experts payment in Bitcoin, an anonymous opportunity to pull the blanket over the eyes of retail investors and tell them the world has gone dark. 

Improper Use Of Dark Pools

Dark pools are a relatively new concept for me. In fact, I didn’t even know they existed until one of my readers sent me information on them and how they’re being used to manipulate the price of AMC stock. 

Not surprisingly, further research showed that the reader was correct. 

Dark pools were created as a way for institutional investors to sell blocks of shares without these shares causing changes to the stock price. Think about it this way…

An institution wants to sell 200,000 shares of stock in the open market. That’s not all going to sell at once, and with each block of sold shares, the price will fall. So, these institutions use dark pools to hide the fact that they’re selling shares, allowing them to get more money. 

That, alone, is already pretty shady, but today’s hedge funds are using dark pools in ways that they were never intended to be used. 

Instead of running sales through dark pools, they’re running buys through them. Think of it this way, hedge funds that want the price of AMC stock to fall take out massive short positions and sell them into the open market without the use of dark pools. Then, when retailers buy stock, dark pools are being used to hide those buys, thus the demand is not being properly included in the supply/demand equation, making it look like selling pressure is more than what it is and buying pressure is less than what it is, ultimately manipulating the price downward. 

Synthetic Share Creation

Hedge funds also seem to be using sneaky ways to create synthetic shares of AMC that are then dumped on the open market. Why would a hedge fund want to create synthetic shares? To tilt the scales of supply and demand of course. 

One of the ways they seem to be doing this is by shorting stock that simply doesn’t exist in a process called naked shorting, which was outlawed in 2008 as it helped to lead to a global financial crisis. I’m guessing that hedge funds didn’t get the memo or simply don’t care. 

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Manipulation Won’t Last Forever

There is a silver lining surrounding this relatively dark cloud. Over the past few trading sessions, retail investors have handed short selling hedge funds nearly a billion dollars in losses, and those losses are likely to continue piling up. 

As long as the APES stay on top of the hedgies, more squeezing of the shorts will take place. 

Since this manipulation is an attempt to make money, if retail investors continue to stand behind AMC and other heavily shorted stocks, robbing hedge funds of their opportunity to profit from manipulation, they’ll eventually stop wasting their time! 

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