Amazon.com, Inc. (AMZN) reports second quarter earnings after the closing bell on Thursday, July 25, with the stock poised to break out above its all-time intraday high of $2,050.50 on a positive reaction to this report. The upside potential is to its semiannual and quarterly risky levels at $2,068.88 and $2,221.10, respectively.
Fundamentally, Amazon stock is overvalued with a P/E ratio of 83.28 and without offering a dividend, according to Macrotrends. I continue to view the stock as the "United States of Amazon," as longer-term growth remains highly likely, with the weekly chart showing rising momentum, which is a positive characteristic for a FAANG stock.
The stock closed Wednesday, July 24, at $2,000.81, up 33.2% year to date and in bull market territory at 53.1% above its Dec. 24 low of $1,307.00. The stock set its all-time intraday high of $2,050.50 on Sept. 4 and its 2019 high of $2,035.80 on July 11.
Analysts expect Amazon to post earnings per share (EPS) of $5.29 to $5.70 when it reports results after the close on Thursday, July 25. Amazon Prime memberships are expected to continue to grow. The online retailer has a winning streak of seven consecutive quarters in terms of beating EPS estimates. Credit Suisse upped its price target from $2,000 to $2,500 on expectations that Amazon Prime will be expanded to additional products.
The daily chart for Amazon
The daily chart for Amazon shows that the stock has been above a "golden cross" since April 26, when the 50-day simple moving average (SMA) rose above the 200-day SMA to indicate that higher prices lie ahead. The stock slipped to a test of its 200-day SMA at $1,753.20 on June 3 as a buying opportunity.
The close of $1,893.63 on June 28 was an important input to my proprietary analytics and resulted in the following key levels. A monthly value level of $1,917.61 should be a magnet in July. Semiannual and quarterly risky levels are $2,069.88 and $2,221.10, respectively. These levels are above the chart, representing a potential new all-time high lie ahead.
The weekly chart for Amazon
The weekly chart for Amazon is positive but overbought, with the stock above its five-week modified moving average of $1,932.22. The stock is well above its 200-week simple moving average, or "reversion to the mean" at $1,172.59. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 83.51 this week, up from 81.27 on July 19.
Trading strategy: Buy Amazon shares on weakness to the monthly value level at $1,917.61 and reduce holdings on strength to the semiannual and quarterly risky levels at $2,069.88 and $2,221.10, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.