Amazon.com, Inc. (AMZN) is in a tough spot as the online retailing giant is below a "death cross" on its daily chart and needs to end this week above its five-week modified moving at $1,623.58 to regain the momentum that will return investors to the stock I call the "United States of Amazon." Strength this morning has the stock on the cusp of this key level.
The "death cross" occurred on Dec. 12, when the 50-day simple moving average declined below the 200-day simple moving average, which warned that lower prices would follow. This led the stock from a close of $1,663.54 on Dec. 12 to the low of $1,307.00 on Dec. 24.
The weekly chart for Amazon has been positive since the week of Jan. 11, when the close was above the five-week modified moving average then at $1,590.74 and its weekly stochastic reading began to rise again. This will come to an end unless there is a positive reaction to earnings when the company reports after the close on Thursday, Jan. 31. Analysts expect Amazon to report earnings per share (EPS) between $5.57 and $5.76. The typical equity money manager will avoid Amazon, as Macrotrends shows a P/E ratio of 100.79 and the stock does not pay a dividend.
Amazon has been beating EPS estimated in each of its prior five quarters. When you shop on the "United States of Amazon," you can buy products and services for almost all segments of our consumer needs. In areas of the country where there are fulfillment centers, you may see one of Amazon's new delivery vans. Last week, I took a photo of this Amazon Prime delivery truck.
President Trump criticized Amazon for not paying enough for last-mile deliveries through the United States Postal Service. The company is also building air freight services to compete with FedEx Corporation (FDX) and United Parcel Service, Inc. (UPS).
While revenue growth should continue, the costs of expansion will likely become the earnings focus. Amazon Web Services will remain the global cloud computing leader. Advertising dollars should continue to rise, consumers enjoy shopping at Whole Foods supermarkets and Amazon Prime memberships should continue to grow.
Amazon shares closed Tuesday, Jan. 29, at $1,593.88, up 6.1% so far in 2019 and up a bull market 21.9% since trading as low as $1,307.00 on Dec. 24. Because of downside volatility, the stock is also in bear market territory at 22.3% below its all-time high of $2,050.00 set on Sept. 4.
The daily chart for Amazon
The daily chart for Amazon shows the "death cross" that formed on Dec. 12. Note that the test of the 200-day simple moving average at $1,709.39 was an opportunity to reduce holdings. The 2018 close of $1,501.97 was the input to my proprietary analytics that resulted in the four horizontal lines on the chart. My annual value level is $1,316.06, with my semiannual, monthly and quarterly risky levels at $1,782.25, $1,859.16 and 1,947.78, respectively.
The weekly chart for Amazon
The weekly chart for Amazon needs a close this week above its five-week modified moving average of $1,623.58 to remain positive. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $1,002.80. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 60.54 this week, up from 54.36 on Jan. 25.
Trading Strategy: Buy Amazon shares on weakness to my annual value level at $1,316.06 and reduce holdings on strength to my semiannual, monthly and quarterly risky levels at $1,782.25, $1,859.16 and 1,947.78, respectively.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.