Is Amazon Headed for a Breakdown? – October 6, 2021

Amazon.com Inc. (AMZN) is a leading online retailer and one of the highest-grossing e-commerce aggregators. In addition to retail, offerings include Amazon Web Services’ cloud computing, storage, database, advertising services, and co-branded credit cards.

The company has been gaining momentum in its Prime service due to fast delivery and a strong content portfolio. AMZN is also seeing growth in its online stores’ sales and solid adoption in AWS. Momentum in Amazon Music is also driving growth.

As of the most recent quarter, the company had a whopping $89.9 billion in cash, up from $73.3 billion the previous quarter. Its current ratio of 1.2 indicates it has more than enough liquidity to handle short-term obligations leading to a Quality Grade of B in our POWR Ratings system.

From a growth standpoint, earnings have grown an average of 67.3% per year over the past five years. Analysts forecast earnings to rise 26.4% this year. Its stock looks overvalued with a trailing P/E of 60.29. The stock has shown mixed performance over the past year as shown in the chart below.

Over the past several months, AMZN formed a trendline level of support (blue) which has also become the “neckline” (blue) for the stock’s head and shoulders (H&S) reversal pattern. Confirmation of the H&S would occur if AMZN breaks the trendline, and lower prices would be expected from there. In that scenario, the $2900 mark (green) would be the first target. Short trades could be entered if the stock were to break the neckline, with a protective stop placed above the point of entry.

AMZN shares fell $18.00 (-0.56%) in premarket trading Wednesday. Year-to-date, AMZN has declined -1.88%, versus a 15.82% rise in the benchmark S&P 500 index during the same period.

Author: Christian Tharp