TAKEAWAYS
- Amazon stock has been falling ahead of earnings and is close to hitting the support of its 200-day moving average
- When AMZN announce its Q3 earnings, investors will be interested in the company's e-commerce and cloud services
- Keep an eye on AMZN's price action especially at critical support levels
If you're feeling a little conflicted on Amazon's (AMZN) near-term prospects and whether to take a bullish or bearish stance, it's probably because of the many reasons—technical and fundamental—to consider either perspective.
Technical Reasons to Hate AMZN Stock: The Bearish Case
Despite AMZN's strong YTD performance, the big picture shows it underperforming the S&P 500 ($SPX) by -29% and the Consumer Discretionary sector (using XLY as a proxy) by -18% (see weekly chart of AMZN below).
CHART 1: WEEKLY CHART OF AMZN. The current price action may be nothing more than a bear rally.Chart source: StockCharts.com. For educational purposes.
The upside trend break (see blue trendline) marks the stock's reversal after bottoming at the beginning of 2023. But is this a mere correction? Once the rally hit the 61.8% Fibonacci retracement level, drawn from the 2021 peak to 2023 trough, the bears were jumping (and bulls lost heart).
What fundamentals support this bearish technical outlook? There are many...
Fundamental Reasons to Hate AMZN Stock: The Bearish Case
AMZN may have a diverse startup portfolio, but startups are going extinct, at least for now. With over 543 startup shutdowns recorded this year, the drop in cloud service demand will sting.
Also, AMZN's stock price is down 25% from where it was in early January 2021. Macroeconomic challenges, such as high oil prices and interest rates, could hurt the company's performance.
Lastly, Amazon is in an antitrust battle with the FTC over price manipulation and merchant lock-in. This could hurt the company and lead investors to sell.
Technical Reasons to Love AMZN Stock: The Bullish Case
CHART 2: DAILY CHART OF AMZN. The year-to-date picture shows a different situation, with price declining into potential critical support. Plus, buying pressure, as shown by the Chaikin Money Flow (CMF), appears to reveal a sharp surge.Chart source: StockCharts.com. For educational purposes.
Here's a question: Are the bulls failing to see the big picture (long-term), or are they right in taking a more "current view of AMZN's performance?
AMZN may be declining against the S&P 500, but it's still outperforming it in the near term by 21%. As for XLY, AMZN's year-to-date outperformance is quite pronounced and rising, up 22%. AMZN's price action shows a sharp decline that began in September; however, by drawing a Fib retracement from the March bottom to the September top, representing the stock's YTD surge, we can see that the stock's price touched the 50% Fib level, which happens to coincide with the 200-day simple moving average (SMA).
Adding to the technical bull case, look at the Chaikin Money Flow (CMF) in the lowest panel. The CMF shows a sharp divergence between AMZN's decline and the rise in buying pressure, indicating that more investors are buying than selling the stock (possibly). This bullish technical perspective is not without fundamental merit either.
Fundamental Reasons to Love AMZN Stock: The Bullish Case
Amazon has a diverse portfolio of startups. AWS has supported around 250,000 startups, including 83% of the world's unicorns. Startups are slowing right now, but there's the generative AI boom, which can increase demand for AI cloud services.
AMZN stock has had a strong year-to-date performance, up 50%, with the company's revenue having grown across all of its business segments. Its diverse revenue streams also show signs of strength.
Overall, its dominance in e-commerce and cloud services, plus its strengthening digital ad revenue, all provide a strong case for its growth prospects.
Earnings Will Be a Critical Driver for AMZN's Stock Directionality
Today's earnings drop has everyone on edge. If today's numbers show a hint of weakness or Amazon's grip slipping, the bears will be ready to pounce, potentially sending the stock deeper into negative territory.
A couple of things to consider:
- Bulls might find AMZN in "buy" territory down to $110, its 61.8% Fib level. Granted, there's a reason to bet on a reversal in momentum and price (versus taking a riskier pre-emptive approach). A stop loss at around $107 would be reasonable, as it would invalidate the near-term technical bull case.
- Bears are likely in position already, with many shorting the stock since September. Hopefully, they placed a stop loss right above $135, the most recent swing high point, to prevent from getting "squeezed" just in case AMZN reveals a blockbuster beat.
The Bottom Line
The conflicting forces of boom and doom are clashing fiercely as AMZN's earnings report looms. The outcome dictates the stock's immediate trajectory—surge or plunge. With a long-term technical landscape that paints a grim picture of potential bear rallies and a 25% nosedive since January 2021, the bears seem to be standing their ground. However, the bulls have a robust case, too, with a 50% spike in YTD performance, dominance in e-commerce, and a potential AI cloud services boom. Either way, today's earnings are poised to tip the scales, a financial showdown and make-or-break moment for AMZN's near-term fate.
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Happy charting!
