(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Amazon.com Inc. (AMZN) investors have gotten used to the stock climbing higher, with the stock up more than 440% over the past 5 years, versus an S&P 500 that is up about 67%. But based on an analysis of the stock's technical trading patterns, the e-commerce giant could be set to fall further, perhaps by another 10% in coming weeks. 

The stock fell below a critical support level, which an Investopedia article on March 23 noted, at $1,440. It leaves the stock vulnerable to a decline towards $1,280, with no support levels in between. Should Amazon fall to $1,280, it would be a decline of over 20% from the peak of $1,617. 

AMZN Chart

AMZN data by YCharts

 

A Fall to $1,280

The sharp decline not only took the stock below technical support but it also fell below an uptrend, and with no support or uptrend in place until $1,283 there is little helping to protect shares from falling further. Additionally, the $1,440 level which had previously served as support, will now act as a resistance level, which may make it hard for Amazon's stock to rebound. The 5-minute chart shows how Amazon tried a number of times on March 28, unsuccessfully. (For more, see also: Wal-Mart Stock Could Outperform Amazon in 2018.)

 

Not Oversold

The relative strength index (RSI) has yet to hit oversold levels as well, with a reading currently around 40. The RSI would need to fall all the way to 30, before signaling oversold conditions. The RSI started trending lower in late January, despite the stock continuing to rise, a bearish divergence which has not finished playing out. 

 

 

Fundamentally Stretched

Amazon continues to be stretched based on Fundamentals as well, with the stock trading at a one-year forward price to sales multiple of 2.65, based on sales estimates of $284 billion. The stock in previous cycles peaked around 2.5 times one-year forward sales. The stock would need to fall by 5% just to get back to a price to sales multiple of 2.5 times. Amazon has peaked at that sales multiple on three prior occasions, with the stock correcting by roughly 24% in 2015, 10.5% in 2016 and 11% in mid-2017. (For more, see also: Why Amazon's Record Stock Gains Are Over.)

But in an ironic twist, even if Amazon should fall to $1280, as the technical analysis suggests, the stock would still be up by about 10% for the year. This gives us an incredible insight into just how much momentum is going into Amazon's stock. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.  

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