NEW YORK ( TheStreet) -- Now that investors have had a chance to digest the last earnings results, it's clear they have lost their desire to continue paying increasingly higher amounts to acquire shares.
Despite many fundamental differences between Amazon (AMZN) and Apple (AAPL), they do share one key fundamental metric and an important technical similarity that may leave you questioning how far Amazon shares may fall.
Both companies have very small short interest, and both became overbought based on my reading of the charts using
The last reported level of short interest for Apple is dated Jan. 15. On that day the short interest was about 17.7 million shares, which may initially appear excessive but it works out to less than one day's average trading volume. Relative to the trading float of about 940 million shares, the short interest is only about 1.9%. This is a very small amount and generally considered a good thing. I say generally because sometimes small short interest can result in fewer buyers when a stock price falls and needs buyers the most. Short sellers wanting to lock in profits will buy back the shares they shorted, resulting in buying pressure that would not otherwise exist. Stocks often overshoot to the upside and downside, and lack of short interest exacerbates euphoric optimism and depressing fear. Amazon also has a low level of short interest. The intuitive reaction is to view small short interest positively. If the smartest market participants are short sellers, and short sellers haven't made bets against the company, the prospects should look very favorable.
The problem that needs to be asked is, Why? Why are shorts avoiding Amazon? I believe short sellers are avoiding Amazon because they believe the price can remain irrational longer than they can stay solvent. In other words, Amazon isn't a great investment, but the herd mentality is something to take very seriously. Apple could be considered overbought based on DeMark timing back in September, but has now gone full circle. I consider it oversold and a great value buy. Amazon, on the other hand, is now overbought and I believe the downside risk outweighs the upside potential.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV