Thinking about buying Amazon (AMZN)? Watch this before deciding…. (December 30, 2016)
AMZN AAPL AMZN
I want to look at Amazon ( NASDAQ:AMZN ), and here is why: Remember this? Remember Apple ( NASDAQ:AAPL )? Remember the weekly chart? This stock was just absolutely jammin. Everybody loved Apple ( NASDAQ:AAPL ). I loved Apple ( NASDAQ:AAPL ). Nice pattern, it just kept going, 120.00, there it is. Oh my gosh, there it is, it is up to 130.00. Down, I guess that was that. We got 1, 2, 3, 4, tests of this level, didn’t work. And then since that time the stock has been doing this now. So this is great! You’re still long, fantastic! You bought right at the top, you are only down $15.00, you are down about 13-14 percent. But look at the pain you have had to go through here; This was Apple ( NASDAQ:AAPL ). Amazon ( NASDAQ:AMZN ), I am not saying you are going to see the same pattern, but you might. Remember, Apple ( NASDAQ:AAPL ) was invincible back then. I saw some people just absolutely making fools of themselves (and I mean that), I would look at this and go, “I don’t know a lot, but I hear what you are saying here on TV, and I know that that is unknowable. I know that the crap that you are spewing out there.” And one of the things that I am talking about was Carl Icahn. “The stuff that you are spewing out there, you are totally guessing, only you are structuring your sentences so that it is a fact, and it is not.”
The point is, with Amazon ( NASDAQ:AMZN ), look, this company is poised to rule the world. For cryin’ out loud, they are going to have blimps up above us with a bunch of stuff and they can drop it down to us if we decide to order a new pair of athletic socks or something like that. And that is just a small part of their stuff. They are like THE thing when it comes to cloud computing and that is just going to get more and more prevalent. So these guys are setup to do really well forever. But they have been moving at the speed of light here, moving up, moving up, moving up. At some point all of that good stuff is going to be factored into the price of the stock. Is it factored in now? I have no idea, neither does anybody else. If you look and see how the stock behaved here at the end of 2014, you see it spurted up right at the end of the year, and then sold off 30 percent. Okay, that is a tough ride for a bull. Now, ultimately, it moves up to a new high. So lets say you wind up buying it right at the high. Fantastic! Five months later you are vindicated and you are feeling good about your purchase. If you are this guy I guarantee you that you are not still holding here. You have ditched it at some point.
My point is, that this is now below the 50-day moving average. They have had some good news, a lot of good news, the stock isn’t reacting. The 50-day moving average continues to serve as resistance. Fundamentally, REALLY strong fundamentals, right? Lets just go through them real quick, just some down and dirty ones on MarketSmith. Okay, quarter on quarter. The quarter ended December 31st, 122 percent growth, earnings per share, versus the prior year. Here, basically 1000 percent, 837 percent, 206 percent. You can say, “Oh, well it is slowing down.” Yes it is, and that is an issue. You can look here, the earnings for 2016, 281 percent. The estimates for next year, 89 percent. These are MONSTER numbers, they are MONSTER numbers. But how much of them have already been priced into the stock? When things look so good they just can’t get any better, that is typically the time that you want to be selling the stock. I am not sitting here pounding the table saying, “You have got to sell Amazon, it is done, it is over.” That is not my point.
My point is, you don’t want to be BUYING it now because the stock is not showing you ANYTHING other than the fact that it is being distributed. Instead of being bought at those RARE tests of the 50-day moving average, now, it is being sold at these rare tests of the 50-day moving average. The big dog here, the 200-day moving average, I am telling you this, if this stock falls below the 200-day moving average, it would be like coming out that blimp that is supplying all the goods to be dropped your way by a drone; it would be like being up there and not having a drone to pick you up. This will be a long, hard fall, we have seen it before, not a lot, but we have seen it. Here, this stock actually started a very extended level above the 200-day moving average, finally pierced through it, and then ultimately recovered. But again, 30 percent loss, and it got really, really oversold, right? Well, this time around it has just been drifting sideways, it has been consolidating. So if this starts falling below this 200-day moving average, it breaks 740.00, breaks 720.00, if it starts falling below this level it is not oversold, it is in the process of becoming oversold.
So here is my suggestion: If you are long the stock, fine, don’t do anything. You are in at 750.00, but at least keep a stop a little bit below the 200-day moving average. Twenty points on a $750.00 stock is not that big a deal. If you are looking to BUY the stock, wait for the stock to rally and CLOSE back above this level. That would be above the 50-day moving average again, but more importantly, it would be a breakout from this tight consolidation. And so you would buy this here around 785.00 or so. And then if the stock, as it moves higher you can buy more. But if we get a breakout in this way, here is the fly in the ointment, they report earnings at the end of January. So between now and then, what is going to happen? Who knows? But something is definitely going to happen when they report earnings.
So there are really two trades here. First, if you get a breakout next week or something, then take this to the long side. If you don’t, then just stay away from it. You don’t have to be an ‘Amazonian’ here, you don’t have to be in this stock. This is a gambling stock right now, because the P/E, 175. That is a pretty big P/E for a stock like Amazon ( NASDAQ:AMZN ), which is already like a multi-mega massive cap. They get added to the Dow Jones Industrial Average. Then you will see one last big blow off. But there is a lot of risk in this stock, more than you might imagine. So plan your trade. Use this 200-day moving average as a key line of support. Use this 780.00, 790.00, maybe 800.00 as a key line of resistance. Until something happens, you don’t want to go anywhere near this.
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