Amazon.com, Inc. (AMZN) missed earnings per share (EPS) estimates when it reported results after the closing bell on April 30. The stock set its all-time intraday high of $2,475.00 at the close on April 30 but declined to $2,256.38 on May 4, staying above its monthly value level at $2,212.91. I do not show a risky level at this time.
The online retail giant has missed EPS estimates in three out of the past four quarters. CEO Jeff Bezos indicated that Amazon's stream of revenue will be used for upgrades to the company's massive infrastructure and platforms. The stock is not cheap, as its P/E ratio is elevated at 113.12 without offering a dividend, according to Macrotrends.
Amazon stock closed last week at $2,379.81, up 28.8% year to date and in bull market territory at 46.3% above its March 16 low of $1,626.03. The stock is just 3.9% below its April 30 high of $2,475.00. Amazon had been trading around its 200-day simple moving average until March 23. Before breaking out above this average, now at $1,894.83, the stock stabilized around its annual value level at $1,777.70. This was a magnet between March 9 and March 19.
The daily chart for Amazon
The daily chart for Amazon shows that the stock has moved sideways over the past 52 weeks, tracking its 200-day simple moving average now at $1,895.83. The stock gapped higher on Jan. 31 on a positive reaction to earnings reported after the close on Jan. 30. This set the stage for a quick spike to a high of $2,185.95 set on Feb. 11.
The stock gapped below its semiannual pivot at $2,078.34 on Feb. 24 and then fell below the 200-day simple moving average at $1,851.43 on March 11. After trading as low as $1,626.03 on March 16, the stock regained key levels to the upside.
Amazon stock crossed above its annual pivot at 1,777.70 on March 18 and then moved above its 200-day simple moving average on March 23. The semiannual pivot at $2,078.34 was crossed on April 13. The quarterly pivot at $2,188.74 was crossed to the upside on April 14. The stock is now above its monthly value level for May at $2,212.91.
The weekly chart for Amazon
The weekly chart for Amazon is positive, with the stock above its five-week modified moving average of $1,184.64. The stock is well above its 200-week simple moving average, or reversion to the mean, at $1,431.80, which has not been tested over the past five years.
Trading strategy: Buy Amazon shares on weakness to the monthly, quarterly, semiannual, and annual value levels at $2,212.91, $2,188.74, 2,078.34, and $1,777.70, respectively.
How to use my value levels and risky levels: The closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.
The second quarter 2020 level was established based upon the March 31 close, and the monthly level for May was established based upon the April 30 close. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels remain in play all year long.
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.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.