Amazon (AMZN) - Get Report has been struggling to regain momentum since missing earnings estimates when it reported quarterly results on July 25. This miss ended a winning streak of beating earnings-per-share estimates for seven consecutive quarters. By Aug. 5, the stock tested its 200-day simple moving average, which continues as a support at $1,760.35, as September begins. My call is to counter-trade the trading range between the 200-day and the 50-day SMA, which is now at $1,879.83. The pre-market low Tuesday held the 200-day.
A warning is that the weekly chart has been negative since Aug. 2, which makes the 200-day an important level to hold. This is why I recommend reducing holdings on a price gap below the 200-day SMA.
Amazon ended August at $1,776.29, up 18.3% year to date and in bull market territory 35.9% above its Dec. 24 low of $1,307.00. The stock is also in correction territory 12.7% below its 2019 high of $2,035.80 set on July 11. Over the longer term, the stock set its all-time intraday high of $2,050.50 during the week of Sept. 7, 2018 and to its Dec. 24 low had a bear market decline of 36%. This bear market is being consolidated and the technical warning is the potential double-top set in Sept. 2018 and July 11.
Here are the factors that came into play following the earnings report released on July 25. It appears to be that the cost of moving to one-day shipping for Prime members caused the miss in earnings-per-share. Keep in mind that the fundamentals are not positive. The stock has a P/E ratio of 73.71 and does not offer a dividend, according to Macrotrends. The stock is for momentum traders of FAANG stocks, and momentum is weak.
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. When I see this, I ignore these signals. The stock, like the market, is trading between its 200-day simple moving average and 50-day simple moving average, which are now at $1,760.35 and $1,879.83, respectively. Strength has lagged the 50-day, which is a warning that a gap below the 200-day could come any day now. Keep in mind that the gap below the 200-day results in a vacuum as its annual value level lags at $1,316.06.
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 $1,821.12. The stock is well above its 200-week simple moving average or "reversion to the mean" at $1,208.38, which is below the annual value level at $1,316,06. The horizontal line above the chart represents semiannual and monthly risky levels at $2,069.88 and $2,087.78, respectively, which are just above the double-top potential of the Sept. 2018 high of $2,050.50 and the July 11, 2019 high of $2,035.80. The 12x3x3 weekly slow stochastic reading is projected to slip to 32.04 this week down from 39.75 on Aug. 30. Note that during the week of May 3 the stock traded as high as $1,964.40 when the weekly slow stochastic reading was 94.40 well above the 90.00 threshold, placing the stock in an "inflating parabolic bubble."
Trading Strategy: Buy weakness to the 200-day SMA at $1,760.35 and reduce holdings on strength to the 50-day simple moving average at $1,879.83. Use a sell stop below its 200-day simple moving average at $1,760.35.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June. 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 now. 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.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.