Amazon (NASDAQ: AMZN) has rebounded nicely after taking it on the chin following the most recent earnings report. Should traders be buying dips or selling rips in the shares of Bezos' baby?

Amazon shareholders large and small were left holding the bag following the most recent quarterly report from the company back in late July. The stock fell from $362.93 down to $304.59 in just a few sessions following the revelation that Bezos and friends were still in “loss leader” mode when it comes to their view on making money.

Institutions and analysts were very vocal in their insistence that the company start to shed the parentheses and post some profits on a consistent basis while still investing prudently in the future. Amazon's executives, however, remained staunch in their stance on how to best approach the company's “invest now, profit later” strategic approach. So, what does the near future hold for Amazon's shares?

What The Bulls Are Seeing...

The hardcore Amazon loyalists are likely to remain so as long as they can see the cool things on which the company is focusing. To their credit, Bezos and his leadership do a nice job letting the world know they are always looking way down the road at new technologies and ways to corner their markets.

The bulls point to the fact that the stock is cheap on a price-to-sales basis (their P/S comes in at just under two), that they have several billion dollars in cash over and above their debt, and that regardless of reported earnings the company is flush with operating and levered free cash flow.

Technically speaking, the bulls are lacking in much evidence to support their rose-colored stance. The stock has certainly bounced off the lows, but is now reading overbought on a short-term basis and is already looking a bit tired despite remaining well of the pre-earnings levels.

What The Bears Are Seeing...

The bearish crowd in the Amazon arena stands at the ready with a litany of bearish bullet points. First, they note that the stock's valuation is ridiculously high based both on a price-to-book basis (Amazon comes in at 14.77) as well as on a price-to-earnings and PE/G basis (Amazon comes in at more than 150 on its PE ratio using next year's consensus and more than 50 using the highest earnings estimate on the street; even using the lower PE, the PEG ratio comes in at two).

Related Link: When Will Google Reemerge As A Market Leader?

Second, the bears on Amazon note that the action in the stock following earnings was a clear sign that investors may finally changing their stance on the company from being patient at all costs to being insistent on bottom-line results. Finally, the bears point to the fact that the recent bounce appears to be nothing more than a dead cat bounce/rally into which many shares should be sold.

Who Will Be Right?

Technicians say that Amazon needs to re-take the pre-earnings price high at $364.85 in order to completely reverse the negative status of the stock's chart. The technicians note that Amazon shares may have just completed wave “a” of a short-term “abc” upside correction and that a drop back down to $320.66 may be in the cards (wave “b”) in the very short-term before a push up to $364.85 occurs (wave “c”).


It will be that last push where Amazon will be at a “make or break” stage where a breakout crushes the bears or a failure could crush the bulls. On the other end of the spectrum, technicians note that any break and close below $304.59 would likely lead to a continued drop to the mid-$200s.


It appears to most objective analysts that the best way to approach Amazon shares is to enter either side of the fight as close to technical support or resistance as possible so as to minimize the damage if you are incorrect in your stance.

Guessing exactly when Bezos and company will decide to flip the profits switch on seems to be a fool's errand. Caveat emptor -– for both the bulls and the bears!

Related Articles
  1. Budgeting

    Plated Review, Is It Worth It?

    Take a closer look at the ready-to-cook meal service, Plated, and learn how the company can help you take the hassle out of home cooking.
  2. Investing News

    How China's Economy is Now Like America's

    China's economy could take the global economy down with it; why that might be good news in the grand scheme.
  3. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  4. Fundamental Analysis

    South Korea - King of Exports

    Read about one the most important and successful exporting countries in the world, and learn more about the types of products it exports.
  5. Investing News

    Volatility Vexed? See What the Experts Are Saying

    Volatile times lead to a diversity of opinions on where the market is headed. Here are takes from five investing luminaries.
  6. Investing Basics

    The January Barometer: Is it Still Relevant?

    The January Barometer has been historically accurate. Will that be the case in 2016?
  7. Investing News

    The 8 Highest Grossing Movies of 2015

    Count down the most popular films at the American box office in 2015, and learn how much they earned in the domestic and worldwide markets.
  8. Economics

    Why the Chinese Economy Impacts the U.S. So Much

    Here's how the Chinese economy, the second-largest in the world, impacts the United States.
  9. Investing News

    Why You Should Be Buying Stocks, Not Going to Cash

    Hedge fund managers are buying up the shares of big companies. What do the managers know that we don't?
  10. Economics

    Why Commodities Aren't to Blame for Market Malaise

    Commodities are taking the brunt of the blame for poor investment performance. Are they the real villain?
  1. What is the long-term outlook of the metals and mining sector?

    An industry agency council was established by the World Economic Forum in 2014 to serve as an advisory board on the future ... Read Full Answer >>
  2. What is the railroads sector?

    The railroads sector is comprised of publicly traded stocks for companies that operate railroad tracks and/or trains. Railroad ... Read Full Answer >>
  3. Who are Amgen Inc.'s (AMGN) main competitors?

    Biotech giant Amgen Inc (AMGN) bills itself as one of the first biotechnology firms. It was founded in 1980 and has grown ... Read Full Answer >>
  4. What's the most expensive stock of all time?

    Back in late August 2012, Apple’s (AAPL) stock price reached nearly $700 per share. The stock has since split but has yet ... Read Full Answer >>
Trading Center