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Why These Meme Stocks Are Starting to Diverge

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It’s been a while since we talked about “meme stocks.”

And while it used to be the “Mother of all Meme Stocks,” AMC Entertainment Holdings, Inc. (AMC) has fallen out of the news lately.

Are the Reddit traders finally calling it quits and giving up on this stock?

I’m not sure, but I certainly am.

And I’ll tell you why below…

I’ll also tell you why I think another stock that’s a favorite among retail traders could be gearing up for another bullish move.

I’m talking about Tesla, Inc. (TSLA), which much to the chagrin of its many haters has held up extraordinarily well recently…

Even as many of its meme stock peers have plunged extremely far below their post-pandemic highs.

There could be more in store for TSLA going forward, but given the volatility in the market, I’m taking a more cautious, short-term approach to my trading right now.

AMC Falling Out of Favor

I first brought AMC Entertainment to your attention back on Aug. 19.

At the time, AMC had already made a massive move higher out of its early 2021 consolidation range.

The stock peaked at over $70 per share in early June following its first breakout, and started to pull back. 

For a while, it was looking like a textbook consolidation pattern

We saw decreasing volume, shallower pullbacks and good relative strength when compared to the market.

Daily Chart of AMC Entertainment (AMC) — Source: TradingView

But that all changed this past week, as you can see in the chart above.

AMC is now breaking down from a technical standpoint.

The stock broke through short-term support (dashed red line) during Wednesday’s session on heavy volume, which is a clear “get out” sign for anyone that was still holding.

Remember the “80/50 Rule”?

It states that once a secular market leader like AMC puts in a major top, there’s an 80% chance it will decline by 50% and a 50% chance that it will decline by 80%.

Well, the stock has already dropped about 60% from its highs…

And with the shares below the 200-day moving average, the long-term trend is no longer bullish.

Therefore, I think it’s possible we could see AMC fall even further to notch that 80% decline from the June high.

Only time will tell, but AMC is dead to me now.

Once a stock closes below its 200-day moving average, I won’t touch it, and that’s exactly what happened on Wednesday.

Tesla Continues to Triumph

On the other side of the meme stock story is Tesla, which I first saw setting up in a classic breakout pattern back in the Sept. 1 issue of Stock Surge Daily.

I first took a position in TSLA around $729.75, and I added to my position when it broke $764.00 and made a new multi-month high.

Daily Chart of Tesla, Inc. (TSLA) — Source: TradingView

Sure, Tesla pulled back on Wednesday as well, but the stock is once again consolidating in a new range between about $1,000 and $1,200 per share.

It’s also still above both its 50-day and 200-day moving averages, showing that the bullish trend is still intact.

If you missed that trade, don’t try to jump in right away.

I think we’re probably in the early stages of another long setup, but as I mentioned above, I’m taking a more cautious, short-term approach to my trading right now.

Markets have been skittish lately about the inflation landscape and concerns over a new variant of the coronavirus, so it makes sense to be patient here.

But once TSLA starts to show some signs of a pending breakout, I’ll get back in touch with another update.

Embrace the surge,

Ross Givens

Editor, Stock Surge Daily

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