The Cineworld share price staged a 3% relief rally on Tuesday after it crashed by more than 10% a day before. The CINE stock ended the day at 58.38p, which was still 53% below its year-to-date high. It is also trading at the lowest level since December.
What happened? Cineworld had an encouraging start of the year as investors cheered the speed of vaccinations in the UK and US. This optimism pushed the stock up by more than 163% from January to March. Things started changing as investors started predicting that the overall recovery would be slower than expected.
The situation worsened this week as more countries started recording a surge in the Delta variant cases. The latest data from the UK shows that the country is recording more than 60,000 new Covid cases every day. And, about 40% of all Covid hospital admissions are of people who have received a vaccine. Similarly, in the US, the number of cases is rising in most states.
Therefore, while the movie theatre industry is seeing rising demand, there are concerns that governments will be forced to reinstate some restrictions. In the UK, the Boris Johnson administration has not ruled out returning some of these lockdowns. If this happens, the movie theatre industry will be one of the most affected since it is considered non-essential.
Investors are also waiting for the company’s interim results that are scheduled for August 12. These results are expected to show that the firm did well in the second quarter. Still, as it did in the previous statement, the management will have a wait and see approach concerning its guidance.
In my last article on Cineworld share price, I noted that a DCF calculation showed that the stock was 83% undervalued. I concluded that the stock would continue the bearish trend. This prediction was right since the shares have declined by more than 10%. It also broke out below the descending channel that is shown in blue. Further, the shares have remained below the 25-day and 100-day moving averages. It has also formed what looks like a bearish flag pattern.
Therefore, for now, I suspect that the shares will remain in a bearish trend as investors target the next key support at 50p, which is about 15% below the current level. A move above the resistance at 70p will invalidate the bearish view.
Follow Crispus on Twitter.
