Cineplex (CGX.TO) stock has triggered its reversal pattern, and is up over 25% since the last I covered the set up and trigger point in a past Market Moment. Just last week, I covered AMC Entertainment as its technical chart and fundamentals made it a superior trade versus Gamestop. Sure the ‘meme’ stonks were getting a bid that day, but AMC was also buoyed on the news that theatres in the state of New York would begin to open. The same combination of technicals and fundamentals apply to Cineplex. But fair warning: this one could take off anytime.

 

The pandemic has been tough on theatres. Many are still shut down due to lockdown measures. But investors are considering the beaten down theatre stocks for a recovery play. In fact, investors seem to be pricing in the re-opening.

 

One word: vaccine. Similar to the Airlines and Cruiseline stocks which have made spectacular moves based on pricing in a re-opening and a return to normal, AMC and Cineplex can be included in this group. Although some may argue the former two industries got government subsidy/bailout support.

 

So is Cineplex stock ready to make a comeback? I say yes!

 

Before we look at the technicals, a few fundamental pieces to cover.

 

Cineplex have recently announced the sale of $250 million in unrated junk bonds. Junk is the term we use for high yield corporate bonds. Cineplex had a blowout bond deal, indicating investors are betting on a recovery.

Cineplex Inc. sold its $250 million sale of unrated bonds at a lower yield than previously offered after seeing strong demand from investors seeking to play the economic recovery trade.

 

Cineplex bookrunners garnered orders for around five times the deal’s size and 51 buyers took part in the transaction, said the people. The arrangers had gathered around $1 billion in preliminary indications of interest as of Thursday.

 

Canada’s largest chain of movie theaters priced the second-lien secured senior notes due 2026 to yield 7.5 per cent

Many movies have been taking the HBO Streaming route, but the experience of going to a movie for a date etc will still be there. I would argue that this demand would be even stronger as people want to get back to doing the normal things after being locked down for such a long time.

 

The James Bond movie has been delayed for over a year as they want the film to be released in theatres. They do not want to go down the streaming route. Godzilla vs Kong is also a big movie which is coming out on March 31st 2021, and on their main website, they display the words boldly: “Only in Cinemas”.

 

Recent numbers do indicate the public’s enthusiasm to return to movie theatres. The film Tom and Jerry racked in $13.7 Million at the domestic box office, (US) which surprised many analysts, and gives hope to movie theatres.

Technical Tactics

 

Boom. That’s the best word.

 

Just as I said the move would play out, Cineplex is right on track to hit the $16.00 zone, and then longer term, the $22.00 zone.

 

Our inverse head and shoulders reversal pattern triggered with a close above $12.00, and then when price pulled back to retest $12.00, we got a large green candle. My arrow is pointing to said candle on the chart. Very bullish and indicating that the buyers will defend this zone.

What is an inverse Head and Shoulders pattern (H&Si)?

 

Momentum remains strong as Cineplex closed above $14.30 yesterday. Why is this so important? For five trading days, Cineplex did not carry the momentum forward. It kept being capped under $14.30. This is due to the pressure global equities felt from rising yields. Cineplex held strong even when bigger names dumped. I contribute this to the technical set up.

 

Finally, a break above $14.30 confirms the first higher low. What the heck do I mean by that? Well uptrends do not go up in a straight line. We tend to see price move up and then recede, before moving up again, and then receding. Similar to waves hitting the beach and then receding, hence why I like to call swings waves. We should expect to see multiple higher lows in an uptrend, and so far, Cineplex has just confirmed one right after the breakout.

 

Higher High ? Higher Low? Lower Low? Lower High?

In summary the chart looks great, and we remain in a bullish stance as long as price remains above the $12.00 zone. The fundamentals for re-opening and the  return to normalcy is being priced in by investors. The major thing which could upset this move would be developments in the bond market. If yields continue higher and the market gets spooked. In this scenario, we could see an everything sell off like we saw back in February of 2020.

Written By:

Vishal Toora

Vishal has been a student of the markets since 2012, having experience trading markets on a proprietary, boutique investment, and the retail level. His goal is to encourage others to take control of their financial future, and simplify the market with his market structure method. He spends his free time reading non-fiction, supporting Chelsea FC, and participating in too many nerdy things to list.

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