One year ago today, Amazon (AMZN) - Get Report set its all-time intraday high. The Oct. 4 open today at $1,726.02 is a 15.8% correction from its Oct. 4, 2018 all-time intraday high of $2,050.50. Its weekly chart has been negative since the week of Sept. 20. If the stock stays below its 200-day simple moving average at $1,180.40, a "death cross" will be confirmed next week.
My call is to sell strength to the 200-day SMA as the downside risk is significant if the stock ends the week with a negative chart. It's highly likely that the close will be below the five-week modified moving average at $1,789.48, keeping the weekly chart negative.
Amazon missed earnings estimates when it reported quarterly results on July 25. This ended a winning streak of beating earnings-per-share estimates for seven consecutive quarters. The stock closed Thursday at $1,724.42, up 14.8% year to date and up a bull market 31.9% from its Dec. 24 low of $1,307.00. Its 2019 high of $2,035.80 set on July 7 can be considered a "double top" and the stock is 15.3% below this secondary high. Amazon is consolidating a bear market decline of 36% from its Sept. 4, 2018 high of $2,050.50 to the Dec. 24 low of $1,307.00.
A "death cross" is a bearish signal that occurs when the 50-day simple moving average falls below the 200-day simple moving average. This signal indicates that lower prices lie ahead. Friday the 50-day SMA is falling to $1,799.35, trending toward its 200-day SMA at $1,780.40.
As one of the important FAANG stocks, rising momentum is the key to adding to long positions. The stock is not for value investors as its P/E ratio is elevated at 72.02 and the company does not offer a dividend, according to Macrotrends.
The Daily Chart for Amazon
Courtesy of Refinitiv XENITH
The daily chart for Amazon shows that the stock flip-flopped from a "death cross" to a "golden cross" over the last 52 weeks and is about to confirm another "death cross" next week. This occurs when the 50-day simple moving average declines below the 200-day simple moving average, indicating that lower prices lie ahead. A "death cross" was confirmed on Dec. 12 and from that day's open at $1,669 led to the Dec. 24 low of $1,307. A positive "golden cross" confirmed on April 26, 2019 was followed by a test of its 200-day SMA at $1,753 on June 3. This "golden cross" led to the 2019 high of $2,035.80 set on July 11, 2019. Based up the 2018 close of $1,501.97, my proprietary analytics shows an annual value level at $1,316.06. The mid-year close of $1,893.63 was input to my analytics and the second half semiannual risky level is 2,069.28. The Sept. 30 close of $1,785.91 resulted in a monthly risky level for October at $1,865.87.
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The Weekly Chart for Amazon
Courtesy of Refinitiv XENITH
The weekly chart for Amazon is negative with the stock below its five-week modified moving average of $1,789.48. The stock is well above its 200-week simple moving average or "reversion to the mean" at $1,230.74. which is below the annual value level at $1,316,06. Notice how the September 2018 high of $2,050.50 and the July 11, 2019 high of $2,035.80 is a potential "double top." The 12x3x3 weekly slow stochastic reading is projected to slip to 20.89 this week down from 25.59 on Sept. 27.
Trading Strategy: Reduce holdings on strength to the 200-day simple moving average at $1,780.40. The second sell level is the monthly risky level at $1,865.87. I do not show any nearby value levels as the annual value level lags at $1,316.06.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.
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 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 its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.