AMTD Idea stock price is stuck in a range: 3 reasons not to short it

AMTD Idea (AMTD) stock price has moved horizontally since November last year as the company has not made any headlines. The shares have remained inside the narrow range whose support and resistance points are $1.64 and $1.95 in this period. They remain over 99% below their all-time high.

The historical performance of AMTD and HKD means that some market players may consider shorting the company. Besides, it is a Chinese company at a time when stocks in the country are plunging as evidenced by the performance of the Hang Seng and CSI 100 indices. 

However, there are three main risks for shorting the company. First, AMTD was a meme stock when it went public as its valuation ballooned to over $100 billion. At that time, the company had a bigger market cap than Goldman Sachs, the legendary American investment bank. 

Therefore, there is a likelihood that the company could attract the same crowd in the coming months since US equities are surging. If this happens, it means that the company could experience a short squeeze.

A good example of this is Top Financial, a company that went parabolic on Friday. This surge happened even though the company made no headlines on that day. Recently, we have seen other meme stocks like Canoo and Mullen Automobile go parabolic.

Second, AMTD’s business is doing well, if its financials are to be believed. In November, the company said that its revenue for the six months to June jumped by 8.6% to $128 million. Its profit jumped to $105.7 million while net assets jumped to $1.5 billion. This is a sign that the company is doing modestly well.

Finally, the chart above shows that AMTD stock price has remained in a consolidation phase for a while now. This is a sign that there are not many people willing to push it below the support at $1.65. The Wyckoff method cautions that such a horizontal move can be a sign of accumulation.

The second phase after accumulation is known as mark up and is usually characterised by higher demand vs supply. Therefore, while it is not mandatory, there is a high likelihood that the stock will bounce back in the coming week as it goes through a short squeeze. 

To be clear, I am not advocating for buying AMTD, a company I believe has some substantial challenges. Instead, I believe that shorting it now can lead to substantial losses if a short-squeeze happens.

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