Amazon.com, Inc. (AMZN) is set to report earnings after the closing bell on Thursday, April 25, with both bullish and bearish warnings. The daily chart shows the formation of a "golden cross," while the weekly chart shows the stock as an "inflating parabolic bubble." Amazon shares are opening Thursday above this week's pivot at $1,913.80, with a quarterly risky level at $2,071.78 that is well above its all-time intraday high of $2,050.50 set on Sept. 4, 2018.
Amazon stock closed Wednesday, April 24, at $1,901.75, up 26.6% year to date and in bull market territory at 45.5% above its Dec. 24 low of $1,307.00. Amazon is helping the Nasdaq Composite and Nasdaq 100 set new all-time intraday highs of 8,151.84 and 7,851.97, respectively, at Thursday's open. No other major equity averages have set new all-time intraday highs in 2019.
I continue to view the stock as the "United States of Amazon," as longer-term growth remains highly likely. Amazon Prime memberships should continue to grow. Some last-mile deliveries are now being made by the company's own fleet of trucks.
Analysts expect Amazon to report earnings per share of $4.72 to $4.95 when it releases results after the closing bell on April 25. Wall Street still thinks that Amazon is in growth mode. Analysts say to look for continued gains in Amazon Web Services, its cloud computing platform, as well as in advertising. Recent price cuts at Whole Foods are targeted to Prime members who also have agreements with Costco Wholesale Corporation (COST).
The daily chart for Amazon
The daily chart for Amazon shows the bear market decline of 36% from the all-time intraday high of $2,050.50 set on Sept. 4 to the Dec. 24 low of $1,307.00 set on Dec. 24. Note the formation of a "golden cross" today, with the 50-day simple moving average at $1,749.62 above the 200-day simple moving average at 1,747.95. This signal indicates that higher prices lie ahead.
The Dec. 31 close of $1,501.97 was an important input to my proprietary analytics and resulted in an annual value level at $1,316.06 and a semiannual pivot at $1,782.25. The March 29 close of $1,780.75 was another important input to my analytics and resulted in the monthly value level at $1,717.21 and a quarterly risky level at $2,071.78. My weekly pivot for next week is $1,913.80.
The weekly chart for Amazon
Amazon has a positive but overbought weekly chart, with the stock above its five-week modified moving average of $1,797.27. The stock remains well above its 200-week simple moving average, or "reversion to the mean," at $1,081.76. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 92.00 this week, well above the 90.00 threshold as an "inflating parabolic bubble."
Trading strategy: Buy Amazon stock on weakness to its semiannual value level at $1,782.25 and reduce holdings on strength to its quarterly risky level at $2,071.78.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.