Amazon.com, Inc. (AMZN) shares closed the first half of 2019 at $1,893.63, which became a key input to my proprietary analytics. The only level left over from the first half is its annual value level at $1,316.06, which was not challenged as 2019 began. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 21, when the stock closed at $1,869.67.
Fundamentally, Amazon is overvalued with a P/E ratio of 81.12 without offering a dividend, according to Macrotrends. I continue to view the stock as the "United States of Amazon," as longer-term growth remains highly likely. Amazon Prime memberships continue to grow. Some last-mile deliveries are now being made by the company's own fleet of trucks. The online retailer reports earnings on July 25 with a winning streak of seven consecutive quarters in beating earnings per share estimates.
Amazon reported strong earnings on April 25, and the stock responded by setting its 2019 intraday high of $1,964.40 on May 3. Then came the "sell in May and go away" strategy as the stock slumped by a correction of 14.8% to a June 3 low of $1,672.00.
In the longer term, Amazon is consolidating a bear market decline of 36% from its all-time intraday high of $2,050.50 set on Sept. 4 to its Dec. 24 low of $1,307.00. The stock is strong in 2019, with a gain of 29.4% year to date, and it is up a bull market 48.7% since its Dec. 24 low. The stock is 5.2% below its Sept. 4 high.
The daily chart for Amazon
The daily chart for Amazon shows that the stock has been above a "golden cross" since April 25, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. The stock slipped to a test of its 200-day simple moving average at $1,753.20 on June 3 as a buying opportunity.
The close of $1,893.63 on June 28 was an important input to my proprietary analytics and resulted in the following key levels. A monthly pivot at $1,917.61 should be a magnet in July. Semiannual and quarterly risky levels are $2,069.88 and $2,221.10, respectively. These levels are above the chart, representing a potential new all-time high ahead.
The weekly chart for Amazon
The weekly chart for Amazon is positive, with the stock above its five-week modified moving average of $1,875.63. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $1,150.68.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 72.70, up from 67.34 on June 28. At the May 3 high, this reading was 94.40, above the 90.00 threshold making the stock an "inflating parabolic bubble," which popped during the 14.8% decline into June 3.
Trading strategy: Buy Amazon shares on weakness to the 200-day simple moving average at $1,745.05 and reduce holdings on strength to the semiannual and quarterly risky levels at $2,069.88 and $2,221.10, respectively. The monthly pivot at $1,917.61 should remain a magnet in July.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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.