Thoughts on Amazon…and the current market environment.
Good morning, Team. I’ve been doing some reading on the Kindle products this morning. Interesting…though I don’t have much to say that’s “value added” right now. At first blush, it seems that the new product is a bit of a loss leader — their margins will be very, very skinny. They may even be losing money on it, though I can’t say for sure.My experience with Amazon’s Kindle has been lousy, though it’s silly to let that color my analysis of the current product or stock. It’s not productive to bear grudges against companies. The best revenge is making money. :o)
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My bad experience concerned their original Kindle. I ordered it on the first day it was offered. Great! Got it. Liked it….and then Amazon released an upgraded Kindle just a couple of months later with new features on it — at a similar price. Frankly, I was ticked off. REALLY ticked off. The time lag was so short that they could/should have just waited to integrate their new “upgrades” into their original product.
It’s almost as if Jeff Bezos said to his Marketing Director:
Bezos: “Hey. I know how we can make a bunch of money. Let’s just release the product now and suck people in. We can then make some upgrades to it and release it again — after the period for returns of the original product have expired. Assuming our customers like the product, many of them will just upgrade to the new one…and we make even more money?”
Marketing Director: “Well, won’t our original buyers feel betrayed because we’re releasing a new version so quickly?”
Bezos: “Screw ’em. They’ve already bought. So they don’t buy the new one? What’s the problem? This will be a real revenue generator!”
I called the company and complained, asking for at least a discount on the new one. Their response? Basically…”Too bad. So sad.” That was all I needed to hear. I basically flipped them the bird and my Kindle has been sitting on a dusty shelf in my closet for the past year or so. So, even though I tend to buy any cool new technology so that I can be a more informed analyst, I’ll say that I won’t be buying the new Kindle Fire. I suspect I am not the only person who has turned his back on Amazon — to the benefit of the iPad.
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But that’s just me. My personal experience does not impact my view of the stock. The negative experiences of people like me are already baked into the current price of the stock. Such an impact is history — and we don’t make money by trading history. We make money by anticipating the future. The stock is actually acting pretty well. Even as the market flounders, AMZN is up $9 bucks! The stock has been consolidating the last week or so, but the uptrend is certainly intact. Now that the news on the Kindle is out, the upside catalyst for the stock will really be more market-related. If tech starts moving, then AMZN could certainly break out.
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MARKET THOUGHTS
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Away from AMZN, I still view yesterday’s action with caution. This morning and sucked in the retail traders. Pros faded that open and then started selling into the buying at 10:00 (Note: You’ll often see changes in the market at even times (i.e., minute hand on the clock is either straight up, or straight down). What essentially happens is that traders will take assessment of the market at regular intervals. At one of those regular intervals, they will decide to do something different. Today, that “something different” was hitting bids when they had previously been lifting their offers.
Yesterday’s rally was a reaction to the “Thank God! They’re finally doing something over in Europe” sentiment. Then, when reality set in, traders realized that there is nothing new under the sun. All the leverage in the world isn’t going to cure the underlying problem (frankly, it will ultimately make it worse). If a magic bullet existed to kill the debt issues in Europe (and the U.S.), don’tcha think they’d have shot it by now?
When too much is promised too many with too little resources to fulfill those promises, trouble is inevitable and persistent. That is the current situation with most advanced nations on the planet.
So the catalyst for yesterday’s rally has already faded. That leaves us where we were yesterday morning — on the third day of a rally within a tight channel. (Hence, my tweet last night about respecting the levels in the channel. [Note: you can follow me on twitter “@danfitzpatrick”. I don’t tweet a lot…but I do tweet.])
Friday marks the last day of the 3rd quarter. I suspect that the market will maintain an underlying bid through Friday. But the real catalyst for the next move will occur on October 11th when Alcoa reports earnings. From then on, traders will be busy deciphering the strength or weakness of Q3. That will set up trading through October and into November.
Ultimately, you’ve got to trade what’s in front of you, not what you are hearing on the flat screen, or what you are reading on…the flat screen. You read and listen…and then take stock of how the market is reacting to what is said and written. Remember that the financial media has a big bullish bias. They mean well, but you can see how they really get discouraged and gently give bears a hard time on CNBC. At the same time, they are encouraging and supportive of bulls. I am not judging this tendency…I am just taking note of it. It is undeniable.
But that’s OK. Listen to that stuff. Get the bullish and bearish argument objectively. Good traders trade in sync with the market. Some try to time the turns, and the good ones can certainly do that. But the good contrarians are still trading in sync with the market — they just successfully anticipate when the market will turn and they trade in sync with that turn. For most of us, we are better off just waiting for the turn and then shifting gears. It’s easier…and ultimately just as profitable.
I am not doing much today because of where we are in the market. There are two opposing dynamics in the market that make trading a bit more difficult than usual.
Bullish: Q3 window dressing…probably will prop stocks up through Friday.
Bearish: We are up at established resistance and currently printing lower highs within a channel.
Because of those opposing dynamics, I don’t see a great deal of potential in opening new positions and am instead focusing on protecting the profits I have.
Do what you want to do…but you know know what I am doing. :o)
Have a great day.
Dan
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