In September 2018, the value of e-commerce giant Amazon surpassed the exclusive $1 trillion mark. However – in the last week of January 2019 – a whopping $200 billion has since been wiped off their books. This decline of more than 30% officially puts Amazon in bear market territory.
With analysts from Citigroup and Oppenheimer – among others – cutting their price targets, it is setting the stage for an epic battle between the bulls and the bears. This could lead to unique trading opportunities on Amazon’s stock price – at least for the informed and well-prepared trader. Here’s everything you need to know when considering trading it today…
Amazon’s Dizzying 80,000% Growth
Since going public in 1997 and expanding to a $1 trillion valuation in 2018, shares in Amazon have grown more than 80,000%. The company now accounts for 43% of all online sales and continues to expand internationally.
Initially founded as an online bookstore in 1994, Amazon’s revenue now comes from a multitude of places such as Amazon Studios, Amazon Publishing, Amazon Electronics, Amazon Grocery, Amazon Cloud (AWS), and a raft of artificial intelligence products and government contracts – as well as their famous Amazon.com e-commerce site.
Source: Admiral Markets MT5 Supreme Edition, Amazon, Weekly – Data range: from November 13, 2011 – February 4, 2019, accessed on February 4, at 12:19pm GMT. – Please note: Past performance is not a reliable indicator of future results.
Growth and expansion into different industries and countries helped in the decision for investors to buy shares in the company resulting in a soaring stock price – as detailed in the chart above.
In fact, in Amazon’s latest fourth-quarter earnings release on January 31, the company beat all analyst estimates in revenue and earnings per share. However, it was in this very call that set off the alarm bells. Analysts and investors went into panic mode, sending the stock down 5% on the day.
What happened? What are analysts thinking now? Where could the stock price go? Let’s find out.
The Fallout from Amazon’s Latest Earnings Call
While Amazon beat analyst estimates on its revenue amount, the company posted three consecutive quarters of declining revenue in 2018. But, while these were higher than 2017’s, the slowdown in growth has been a point of concern for many analysts. However, it was comments from Chief Financial Officer Brian Olsavsky that really hit the panic button.
Olsavsky said that Amazon would be increasing the amount of their investment this year and also highlighted concerns on new regulations in India that prevents foreign online retailers from selling products through external companies.
The combination of slowing growth – both domestically and internationally – and uncertainty around the impact of India’s regulations was enough for a raft of analysts to cut their price target on Amazon’s stock price:
- Morgan Stanley price target $2,200 (cut from $2,400)
- Citigroup price target $2,000 (cut from $2,125)
- Oppenheimer price target $1,975 (cut from $2,020)
However, most analysts are still recommending buy ratings on the stock and anticipate higher prices in the long term.
In fact, Goldman Sachs increased their price target to $2,100 stating that: “Amazon represents the best risk/reward in Internet given the relatively early-stage shift of workloads to the cloud, the transition of traditional retail online, and share gains in its advertising business, the long-term benefits of each we believe the market continues to underestimate for Amazon”.
Now the analysts’ cards are on the table let’s take a look at the technical chart of Amazon for possible long term and short term trading opportunities.
The Long-Term Trading View
The Amazon weekly chart shows a solid long term trend that is still intact after some increased volatility over the past few months.
Source: Admiral Markets MT5 Supreme Edition, Amazon, Weekly – Data range: from September 4, 2011 – February 4, 2019, accessed on February 4, at 15:12pm GMT. – Please note: Past performance is not a reliable indicator of future results.
The Technical Picture
Since 2011, the 50 exponential moving average (denoted by the red line) has stayed above the 100 exponential moving average (denoted by the orange line). This indicates that buyers have remained – and continue to remain – in control over the long term. While moving average indicators are useful in identifying long-term trends, they are also useful in identifying areas of support or resistance where the market could change direction.
This is evident in Amazon’s share price recently changing direction and moving higher off the 100 exponential moving average. In recent weeks, the share price has also managed to stay above the 50 exponential moving average suggesting further bullishness may be coming.
However, most long term investors would also like to see a positive future in the fundamentals of a company, so let’s take a look.
The Fundamental Picture
Long term fundamental based traders, or investors, may be encouraged by the views of JP Morgan and Deutsche Bank who are both long term bullish on Amazon stock. As Deutsche Bank analyst Lloyd Walmsley states: “We think Amazon is ultimately going to substantially expand its physical footprint and push further into healthcare and shipping/logistics, opening up its addressable markets further. Notwithstanding the volatility in the shares, we think valuations remain compelling”.
While the long term picture does look compelling, there are still – as in any form of investing – associated risks. However, for those interested in having an investment account to invest in longer-term stock and ETF positions, within 15 of the largest stock exchanges in the world, visit Admiral.Invest.
The Short-Term Trading View
The four-hour chart of Amazon’s share price paints an interesting picture for short term traders.
Source: Admiral Markets MT5 Supreme Edition, Amazon, Weekly – Data range: from May 1, 2018 – February 4, 2019, accessed on February 4, at 15:22pm GMT. Please note: – Past performance is not a reliable indicator of future results.
The Technical Picture
In the chart above, it is clear to see that Amazon has been trading within a defined sideways range. However, what is most interesting is the failed break to the downside and to the upside. These failed breaks are demonstrated by the failure of the price to break out of the support and resistance levels (shown in blue) which highlight the sideways range.
These levels could offer two-way trading opportunities for both buyers and sellers if the share price stays within the trading range.
The Fundamental Picture
The average price target for the next twelve months – as surveyed by 32 analysts – is $2,124.46 with the highest estimate being $2,450 and the lowest estimate $1,920. In effect, this is saying most analysts believe Amazon will eventually move back towards its previous all-time high and within the $1 trillion market cap range.
This provides plenty of uplift from current prices and can serve as a useful edge for short term traders trading on Amazon stock CFDs using the Admiral Markets MetaTrader 5 platform.
With recent weakness in the technology sector, traders will be actively looking for the next best stock to trade. Amazon shares paint an interesting picture for both long term and short term traders. How will you be trading it?
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