Amazon.com, Inc. (AMZN) stock closed 2019 at $1,847.84 and closed Friday, Jan. 17 at $1,864.72, up just 0.9% so far in 2020. The stock is in bull market territory at 42.7% above its low of $1,307.00 posted on Dec. 24, 2018. However, Amazon stock is 8.4% below its 52-week intraday high of $2,035.80 set on July 11, 2019.
Amazon has missed earnings per share (EPS) estimates in its past two earnings reports. As a FAANG stock, it is not cheap. Amazon's P/E ratio is 82.58, and the company does not offer a dividend, according to Macrotrends.
The bull market for Amazon peaked at $2,050.50 during the week of Sep. 7, 2018. From this high, shares of Amazon plunged by a bear market 36% to the low of $1,307.00 posted on Dec. 24, 2018. From this low, the stock rallied to its secondary high of $2,035.80, which was a bull market run of 55%. In the case of a bear market correction in 2020, the downside risk for Amazon stock is to its 200-week simple moving average (SMA) at $1,321.32, which would equate to a decline of 35%.
The close of $1,847.84 on Dec. 31, 2019, was an important input to my proprietary analytics. Annual and monthly value levels are $1,771.99 and $1,700.33, respectively, with semiannual and quarterly risky levels at $2,078.34 and $2,332.33, respectively.
The daily chart for Amazon
The daily chart for Amazon shows the bear market decline from the high on Sep. 4, 2018, to the low on Dec. 24, 2018. Since the stock is consolidating this decline and is not in a significant upward trend, Amazon's chart has seen a false "death cross," a false "golden cross," and what now appears to be another false "death cross."
The horizontal lines from bottom to top are the monthly value level for January at $1,700.33, the annual value level for all of 2020 at $1,771.99, and the first half 2020 semiannual risky level at $2,078.34. When I see a pattern like this, the preferred strategy it to counter-trade the levels.
The weekly chart for Amazon
The weekly chart for Amazon is positive, with the stock above its five-week modified moving average of $1,831.03. The stock is well above its 200-week SMA, or "reversion to the mean" at $1,321.32, which has not been tested over the past five years.
The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 75.46, up from 72.45 on Jan. 10. Back during the week of May 3, 2019, this reading was 94.40, well above the 90.00 threshold putting the stock in an "inflating parabolic bubble" formation.
Trading strategy: Buy Amazon shares on weakness to the annual value level at $1,771.99 and reduce holdings on strength to the semiannual risky level at $3,078.34.
How to use my value levels and risky levels: The closing prices of stocks on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each calculation uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are 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 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 typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.