Why does Amazon (AMZN) keep going lower? I have some answers. (August 25, 2017)
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I want to look at Amazon ( NASDAQ:AMZN ) today. Let’s do one thing though; now we can be a little bit more objective. We don’t know what this stock is, we are just looking at this chart. You can see this has been a great stock to be in as long as it was trading along the 50-day moving average. Here we got a shot across the bow, you know what I mean by that, unless you are brand new, that is like a significant negative move that is not supposed to happen. But then ultimately the stock recovers to where you are looking at it and saying, “Oh boy, I thought there was a problem there, but I guess everything is okay.” Only later do you look back and say, “Wow! That was the first indication that there were some problems here. Maybe there wasn’t as much buying as I thought. I figured everything was okay because we got a move higher and then ultimately all the way up to a new high.” But really this was the first real indication that there was an issue, we just don’t see it until a while later.
If you look at the semiconductors, the Nasdaq, you see a similar thing right here. There was a big sell-off. It was a one or a two-day wonder, and then everything seemed to get back on track. But now, with our mystery stock here, the stock moves higher, gaps up on earnings, doesn’t matter what the earnings were, it doesn’t matter. It gapped up, and then it sold off. It closed near the low of the day and then did not recover. It fell back to the 50-day moving average and then didn’t recover. In fact, the stock fell through the 50-day moving average and then the 50-day moving average became support. So, this is all hindsight stuff. I am doing the play-by-play by this.
My point for saying this is, at this time, this stock was over. I am not going to go through it now. But if you look back at Ambarella ( NASDAQ:AMBA ) several years ago you will see a similar phenomenon; where the stock just about went parabolic, then gapped up on some monster earnings, and then fell lower and never came back. Here, we might as well look at it. There were a couple issues way back here when the stock fell lower. But then ultimately it ran up to a new high. And then, Boom! Snap hooked lower, never has come back to threaten that level. You can say, “Well, I don’t think that is going to happen to Amazon.” Hey, seriously, it might.
What I am saying is, at this point, this stock was over. And now we are down here. So is this a buy? No. What I am telling you is, I think this is still a good short. Because if we look at the weekly chart, just looking at the 200-day or 40-week moving average here, this has another 5 percent in it, in my view, pretty easily. I would say the next support level of logical buying would be right around $900.00. Sure, it is not a target, it is a level of probable support. But 5 percent isn’t much of a price target if you are shorting a stock. But, if it is a $945.00 stock and you are using put options, that is a different deal.
So, I think you can go out and sell some October calls, out of the money calls. Implied volatility actually isn’t that high so it is not like you get that much for taking the risk. But you also get a pattern that is pretty reliable here. So you can be selling some calls. You would have to do a bear call spread so you are not just short naked calls, that is never a good idea. But then you can also buy some puts and trade it this way, you would probably make a really good chunk of change. That is likely what I am going to be doing either Monday or Tuesday. And why do I say or Tuesday? Because with this kind of move, on Monday’s you can just almost envision buyers coming in and taking the stock up a bit. The bottom line is, once this stock starts trading below 940.00, I think it has got another $40.00 in it pretty easy.
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