Amazon Needs to Amaze

Unless Amazon blows away estimates like Apple, First Trust Dow Jones Internet Index will have to wait for a general shift in market sentiment before it climbs.
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NEW YORK (TheStreet) -- First Trust Dow Jones Internet Index (FDN) - Get Report has seen much of its top holdings report this week and reports have been good so far, even if the market hasn't reacted positively. Internet retailer Amazon (AMZN) - Get Report is up next and unless it blows away estimates like Apple (AAPL) - Get Report, FDN will have to wait for a general shift in market sentiment before it climbs.

On Thursday of last week,

Google

(GOOG) - Get Report

, the largest holding in FDN with 9.2% of assets, reported a 37% gain in first quarter earnings over the previous year. The market responded by sending Google shares lower after hours and into Friday. On Tuesday,

Juniper Networks

(JNPR) - Get Report

and

Yahoo!

(YHOO)

beat estimates; the firms account for 4.7% and 5.7% of FDN, respectively. Juniper failed to live up to expectations and Yahoo! had weak sales figures. Investors sold on the news and shares of Juniper and Yahoo! were down 6% and 5% on Wednesday.

All told, shares of FDN have lost 1.2% since April 15, compared to a drop of 0.3% for

SPDR S&P 500

(SPY) - Get Report

.

Shares of

Ebay

(EBAY) - Get Report

, 5.8% of FDN, also fell hard following its earnings report after the bell yesterday. The company beat estimates, but only slightly, and revenue guidance was in line with previous expectations.

Although not a holding in FDN, it's notable that Apple's blowout earnings failed to spark a broader technology rally. Shares of Apple gained nearly 6% in Wednesday trading, but

PowerShares QQQ

(QQQQ)

, of which Apple makes up nearly 17%, was up only 0.6%. If sentiment stays the same, even a spectacular beat by Amazon may have little to no effect on other holdings in FDN.

Speaking of Apple, the firm has also entered into direct competition Amazon, as the Apple iPad launched in April along with an e-book store. Amazon's Kindle e-book reader was the dominant device in the e-book space, but the multifunctional iPad sports the ability to read e-books. Responding to the competition, Amazon announced on Wednesday that it would begin selling the Kindle at Target. In the end though, when it comes to earnings, Amazon does not need the Kindle as much as Apple needs the iPad.

Analysts expect Amazon to have earned 61 cents per share in the previous quarter and that has been a consistent target over the past two months. As with Apple, analysts have been very wide of the mark in recent quarters. While not as bad as 95% and 76% misses on the low side with Apple, over the past four quarters, analysts missed Amazon earnings by 32%, 3%, 36% and 18%. I suspect they have low-balled the Internet retailer once again.

With 7.3% of FDN's assets, an Amazon rally would be very supportive of the share price, but based on the precedent of this earnings season, where the broad trend is lower, the best that a strong post-earnings performance from Amazon may do is counteract the impact of losses in the other holdings.

At the time of publication, Dion owned FDN and QQQQ.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.