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AMZN Trade Update & Plan
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Almost every stock in my portfolio has been following their plan. AAPL, FMCN, LOCM & GLW have all been up nice. UA, which I am short, has been going down for some time now. The only stock which was actin up has been AMZN, until this week.
I sold AMZN short on April 10th at $73.02 when I built out my portfolio. I sold ahead of earnings with a long term outlook based on my theory that the market is in pretty bad shape. What I hadn't expected was the all mighty Google having an unbelievable quarter and sending every stock with a website up 10%.
After AMZN's "ok" earnings the stock took a small hit and has been trickling downward ever since. While I was looking like I was in pretty bad shape for a couple weeks while AMZN was hanging out at the $80 level, the trade has gone into the black and I think it will turn out to be a pretty profitable investment. Like most of my trades, I have a fundamental as well as technical reasons for the trade.
On the fundamental side, I feel like the economy is in pretty bad shape and just about anything you buy on Amazon.com is more of a "want" than a "need". For the most part, people are going to be leaving a lot of their "wants" in their wishlist for the next couple months as appose to placing orders. Amazon's web services look promising, but are not at the point where they can make any significant difference. The Kindle, I think it is way too early to tell what will happen with that. I say Apple comes out with one and for absolutely no reason other than the fact that they are Apple, steals the market and starts selling books and magazines on iTunes.
The technical analysis of this chart looks pretty promising. AMZN made an unbelievable run up 150% last year on good earnings and good outlook. Since then, the speculation has gotten out of control and analysts are setting the bar too high for AMZN to have a chance. Back in March the 50 day simple moving average dipped down below the 200 setting off a pretty bearish signal on all the trend followers systems. When the averages crossed the stock turned around and trekked back up towards the 200 day SMA. The big GOOG quarter sent AMZN soaring up to the 200 day SMA where it couldnt break into the $80+ trading range. What you see in the chart below was AMZN unsuccessfully breaking through the 200 day SMA and then getting punished for it. As of today, AMZN has broken through the 50 day SMA and should continue its downward journey as the economy worsens.
I plan on hanging on to my short position in AMZN for some time. My target price is down between roughly $55-60. This I plan on making this more of a "log term" trade, I am looking at the long term support and resistance levels. My target price is just between the high in Sept. '03 and the high set in Jan '06. This level also just so happens to lie directly in the center of the monster jump AMZN made in May '07. If you look at a 2 year chart, AMZN has been as low as $26-27 so you never know =)
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This site is not just a place for me to speak my mind, my goal is for these posts to be a catalyst for conversation. If I have stimulated some thoughts/ideas please be sure to contribute below. Dont be shy =)
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