Amazon.com, Inc. (AMZN) stock is trading lower by more than 6% in Friday's pre-market session after the company missed third quarter profit estimates by a wide margin and lowered fourth quarter guidance. Revenues rose 23.7% year over year to $69.98 billion, beating estimates of $68.72 billion, but higher-than-anticipated expenses undermined earnings per share (EPS). The company now expects fourth quarter revenues and operating income to be well below previous estimates.
That's shocking news for the critical 2019 holiday season, in which the e-commerce giant books the highest sales of the year. The free one-day shipping initiative is costing more than expected, increasing revenues but taking a heavy toll on profitability. The Amazon Web Services (AWS) cloud computing division also disappointed during the quarter, booking fewer sales and less operating income than consensus estimates.
The stock fell to a seven-month low at $1,618 after the bearish news and has bounced ahead of Friday's opening bell. It's now trading just below broken June support at $1,672 and will set off double top breakdown signals if this price level isn't defended successfully during the regular session, That sell signal, if confirmed, would expose continued downside into the $1,550 to $1,600 level, where a three-year rising trendline should provide strong support.
AMZN Long-Term Chart (1997 – 2019)
A May 1997 public offering opened at a split-adjusted $1.97, yielding a narrow trading range, followed by a July breakout to new highs. The uptrend gathered strength in 1998, carving a vertical advance that stalled near $100 in the first quarter of 1999. Two breakout attempts into December failed, completing a triple top that broke to the downside in the summer of 2000. Aggressive sellers took control through 2001, dumping the stock to a three-year low in the single digits.
A modest uptrend retraced about two-third of the decline, stalling in the lower $60s in 2003 and giving way to a persistent but shallow pullback that finally ended in the second half of 2006. The subsequent uptick mounted 2003 resistance in 2007, but the rally failed before reaching the 1999 and 2000 highs. The stock gave up the majority of those gains during the 2008 economic collapse, bottoming out in the $30s and breaking out to a new high in the fourth quarter of 2009.
The uptrend attracted impressive buying interest, generating steady upside within a rising channel that persisted into a 2018 breakout. The climactic uptick posted outsized gains into September 2018's all-time high at $2,050.50 and rolled over, losing more than 35% into December. Buyers returned in January, but the bounce reversed within 15 points of the 2018 high in July, while bearish action into October raises the odds for a long-term top.
The monthly stochastics oscillator crossed into a sell cycle from the overbought zone in June, predicting at least six to nine months of relative weakness. It still hasn't reached the oversold zone, suggesting that bulls will have a tough time mounting a successful defense following last night's breakdown. However, it isn't wise to underestimate the supply of potential buyers looking to open long positions at lower prices.
AMZN Short-Term Chart (2017 – 2019)
The stock needs to hold above the June low at $1,672 to avoid a sell signal that exposes a trip into the rising trendline and $1,550 to $1,600 level. More ominously, the small topping pattern in place since April could form the second high in a larger-scale top going back to January 2018, when Amazon first traded above $1,300. That level marks the line in the sand for the multi-year uptrend, with a breakdown through the December low favoring a trip back into the triple digits.
A Fibonacci grid stretched across the 2019 uptick places the .618 retracement level right at the trendline, with the narrow alignment highlighting the importance of that level. Meanwhile, the on-balance volume (OBV) accumulation-distribution indicator has matched price action throughout 2019, telling market players to watch the indicator for confirmation if bulls fail to remount broken support into next week.
The Bottom Line
Amazon stock has sold off more than 100 points after the company missed third quarter profit estimates and lowered fourth quarter guidance by a wide margin.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.