Amazon.com, Inc. (NASDAQ:AMZN) stock is facing resistance from its 100-day moving average which has been a strong support level in the past.
It has been very rare this year to see a big correction in Amazon.com, Inc. (NASDAQ:AMZN) stock price. However, shares of the Jeff Bezos led online e-commerce giant have come under a lot of pressure after its latest earnings release last month. AMZN stock is still down nearly 10% from its all time high price in July. The massive drop in profits for Amazon in the last quarter have not gone well with the investors. Further, the online retail giant has been in the news for various reasons. The latest being, Amazon has officially announced it will be closing the proposed $13.7 billion Whole Foods Market (NASDAQ:WFM) deal by Monday. On the other hand, Amazon stock continues to struggle having dropped to 3 month low in yesterday's trade. What next for AMZN stock? Will it see a further correction or bounce back?
Amazon stock in for a stiff resistance.
To bounce back from its recent weakness, Amazon stock needs to break the stiff resistance at its long-term 100-day Simple Moving Average (SMA). Previously, the 100-day has acted as a strong support level for the stock. The share price of Amazon has only fallen below the 100-day SMA for the first time in 2017 last week since going past it in the beginning of the year. As can be seen in the technical chart, AMZN stock had bounced back recently after testing the 100-day SMA recently but now the 100-day SMA has become a strong resistance after the share price breached the support. One more indicator that the resistance is very strong is that the stock is unable to break out in spite of seeing high trading volumes. The stock closed down further in the last trading session.
Analysts warn of more downside risk.
Analysts are skeptical of Amazon stock's immediate chances of resuming its uptrend. Rich Ross of Evercore ISI, a technical analyst, warned that AMZN stock is in a very weak position from a technical perspective. Ross states that the $950 level is key support level for the stock in near term and the stock has come closer to the support level after yesterday's close at $952.45. Now, a breach below this support level for the stock could be fatal as the analyst suggests that it would then could fall further to test its 200-day SMA around the $900 mark. The present 200-day SMA stands at 888.55. A fall to $900 mark would mean a further 5.% correction from the last close and a 14.5% fall from its all-time high. "In three of the last five years, the stock has had 30 percent pullbacks. That's not the base case here, but with the stock just 10 percent off an all-time high going into the worst month for stocks historically, I would not be a buyer, I would be a buyer lower — down around $900, $870." Ross said in the Power lunch show. A few days ago we had highlighted in our recent coverage, AMZN stock has become heavily oversold but the stock is yet to bounce back strongly. Investors would better off keeping a close eye on the charts who are looking out for good entry points in the stock.
Amazons world domination plans may take time to yield results.
From a fundamental point of view, Amazon last earning release was a big blow to its bullish thesis. Presently, the online retail behemoth is showing no signs of slowing down making massive investments in different categories to continue its super growth trajectory. All these investments do have an impact its earnings but Amazon has never been bothered about profitability. Amazon is making investments which hold a lot of potential. However, the costs associated with these investments are likely to put pressure on AMZN stock in near-term. But Amazon still has a lot of positives.
Among the many positives for Amazon's future potential is another giant business building within the company. Martin Sorrell, CEO of WPP, one of the largest advertising services agencies in the world, in the earning call stated that the online retail giant would have made $2.5 billion annually from its digital advertising business, according to his estimate. Sorrel further believes that Amazon could be a potential "third force" in digital advertising. The digital advertising business is clearly growing at a fast pace since eMarketer has previously estimated that Amazon had earned as much as $1 billion from its advertising business last year. Amazon has not yet come out in public with the actual numbers. Whatever may be the correct number from the above estimates, one thing is for sure, Amazon is emerging as strong force in digital advertising. This could well be another growth driver for the company going ahead. With the echo device, Amazon further has another great opportunity to extend its digital advertising business to the voice activated world in future.
Playing AMZN stock.
Amazon has a history of defying conventional wisdom as highlighted in our recent coverage. It would be at one's own peril if we are betting against AMZN stock. For the immediate near-term, the technicals hold the key for the stock. Investors should be closely monitoring the technicals to make the best out of the recent weakness in AMZN stock. Long term investors should use any dip to accumulate Amazon shares on the cheap.
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