Amazon.com, Inc. (AMZN) stock posted a seven-month high near $1,940 and then turned lower on Friday morning after the e-commerce giant beat first quarter earnings per share (EPS) estimates by a wide margin and met lofty revenue expectations. The company also reiterated second quarter revenue guidance of around $60 billion but expects foreign exchange headwinds to reduce operating income well below consensus levels.
North American sales rose 17%, while cloud services grew by a healthy 42%, increasing Amazon's domination of the cloud computing space. Many analysts expressed concern about the short-term impact of Amazon's decision to lower Prime shipping to one day, while Caanacord Genuity noted that "growth has decelerated to a level where profitability will matter a lot more to the marginal investor."
Shares of Walmart Inc. (WMT), Target Corporation (TGT) and Costco Wholesale Corporation (COST) sold off after the news, indicating that market players expect the new Prime shipping policy to eventually take market share from rivals or force them to follow suit, at the penalty of lower profits. However, it's too early to tell if one-day shipping will significantly move the market share needle because the space is now dominated by just a handful of major players.
AMZN Long-Term Chart (1997 – 2019)
The company came public at a split-adjusted $1.97 in May 1997 and turned sharply higher just two months later. It posted historic gains into January 1999, topping out near $100 ahead of failed breakout attempts in April and December. The stock sold off through 18-month range support in June 2000, entering a steep decline that ended in the single digits after the Sept. 11 attacks in 2001. That marked the lowest low in the past 18 years, ahead of a steady uptick that stalled in the low $60s in 2003.
A slow-motion decline ended in the mid-$20s in 2006, finally yielding a rally wave that stalled within 10 points of the 1999 high in October 2017. It built a topping pattern at that level and broke down during the 2008 economic collapse, dropping into a relatively mild two-year low in November. That resilience underpinned an impressive bounce that completed a round trip into the 2007 high in the fourth quarter of 2009.
Amazon stock mounted 1999 resistance into 2010, signaling a multi-year breakout that attracted sustained buying interest. The stock has continued to post excellent returns in the subsequent eight years, stalling just above $2,000 in September 2018. It fell more than 35% into December and bounced strongly into 2019, retracing about 80% of the four-month decline. A reversal near this price zone could be significant, especially if it cuts through support at the .786 Fibonacci sell-off retracement level.
AMZN Short-Term Chart (2017 – 2019)
A Fibonacci grid stretched across the decline that started in September 2018 places the .786 retracement at $1,889, which was mounted during the April 23 rally day. The stock is testing that peak on Friday morning, with a breakout favoring a rally into the 2018 high. Conversely, a sell-off through harmonic support could presage an extended trading range, with the stock likely to trade at lower levels during the summer months.
The on-balance volume (OBV) accumulation-distribution indicator topped out with price in September 2018 and dropped to a nine-month low at year end. Buying power has been impressive in 2019, lifting OBV into a stronger retracement than price action. This bullish volume behavior predicts that price will soon follow in a rally that may be strong enough to reach new all-time highs.
The Bottom Line
Amazon stock is trading higher on Friday morning after the company beat first quarter earnings expectations, and it needs to hold $1,890 to retain bullish technical signals.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.