Amazon.com, Inc. (AMZN) shares opened Friday's session more than 4% lower than Thursday's close after the e-commerce behemoth beat fourth quarter profit estimates by a wide margin. In-line revenues and a first quarter warning sent shareholders back to the sidelines in a 100-point, 60-minute slide that reached a two-day low and four-week support near $1,600. The stock is now trading about 30 points above that level, but bottom fishing may be limited into the weekend.
The stock has struggled since posting an all-time high above $2,000 in September 2018, caught in a three-month, 700-point downdraft before bouncing more than 400 points into January. This two-sided action has carved a bearish expanding wedge pattern that is unlikely to attract technically oriented positions in the coming weeks, especially with growing fears that the retail juggernaut's growth rate is starting to moderate.
The post-earnings commentary avoided direct discussion about trade wars, but the company has a lot to lose if the U.S. and China fail to cut a trade deal in February. That unfortunate event could slow sales by triggering an economic slowdown while receipts book smaller profit margins due to added international duties. At that point, market players might discover that Amazon looks and trades just like other, less glamorous cyclical plays.
AMZN Long-Term Chart (1997 – 2019)
The company came public at a split-adjusted $1.97 in May 1997 and entered a sideways pattern that broke to the upside two months later. The subsequent uptrend caught fire, posting higher highs and higher lows into 1999, when it topped out near $100. Two breakout attempts later that year failed, completing a long-term top that wasn't challenged for a decade, ahead of a steep downturn that reached the single digits after the Sept. 11 attacks in 2001.
That marked the lowest low in the next 17 years, ahead a two-legged recovery wave that stalled within 12 points of the prior high in 2007. The subsequent downturn accelerated during the 2008 economic collapse, but the stock held above the 2006 low, exhibiting unusual strength that presaged a multi-year breakout in the fourth quarter of 2009, at the same time that higher internet speeds were underpinning rapid growth in e-commerce sales.
The uptrend eased into a rising channel at the turn of the decade and maintained that orientation into a September 2017 parabolic impulse that added more than 1,000 points into September 2018's all-time high at $2,050.50. Price action since that time raises the odds that the last rally wave marked a trend climax that could signal a long-term top. And ominously for 2019 bulls, the monthly stochastics oscillator crossed into a sell cycle in October 2018 and still hasn't reached the oversold level.
AMZN Short-Term Chart (2017 – 2019)
A Fibonacci grid stretched across the uptrend that started in September 2017 places the December low at the .618 rally retracement level (black lines), while the bounce into January 2019 reached within 30 points of the .618 sell-off retracement (red lines). More importantly, the corrective pattern lacks a significant higher low off the deep December low, raising the potential for a sell-off that matches the intensity and scope of the October and November downdrafts.
The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in September and turned lower with price, grinding out significant distribution into December, when it also bounced at a .618 retracement level. Accumulation since that time has reached a three-month high, indicating significant bottom fishing, but it will take months of additional buying power to reach the prior peak.
The Bottom Line
Amazon stock opened Friday's session near $1,639, or about 80 points lower than Thursday's close. It needs to hold short-term support just under $1,600 or face additional downside that could undercut the $1,500 level in the coming weeks.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.