Hey Traders,
We’ve all heard of so-called “FAANG” stocks — a term that became popular in the past few years to reference five industry titans: Facebook, Apple, Amazon, Netflix and Google (Alphabet).
As if having a name for your posse isn’t enough to cement your status, consider just how much profits at most of those companies have grown since the onset of COVID-19:
Courtesy of Statista
The biggest year-over-year surge in first-quarter net income went to Amazon (Ticker: AMZN), more than TRIPLING from $2.5 billion to $8.1 billion, as buyers were relegated to shopping from home to avoid germs.
In fact, it was a fourth consecutive record profit for Amazon, with e-commerce sales skyrocketing 44% to $109 billion in the quarter.
Yet, despite all this, AMZN looks a bit … anemic on the charts.
What’s more, the stock is on the cusp of flashing a notoriously ominous technical signal, and there are other signs that could spell trouble for the shares.
So today, let’s dive into 3 reasons I’m wary of AMZN right now.
Desperate for a Death Cross
After that aforementioned earnings report, AMZN shares hit an all-time high above $3,500 and sold off.
The stock closed around $3,292 last week, and is now in the middle of a range that’s confined the shares since July.
The “final destination” for the FAANG stock could, in fact, be the round-number $3,000 level, which has served as a floor on several occasions in the past few months.
Perhaps even more concerning, though, is that AMZN’s 50-day and 200-day simple moving averages (SMAs) desperately want to make a “death cross.”
AMZN with 50-day and 200-day SMAs – Courtesy of Stockcharts
A “death cross” is when a longer-term moving average crosses above a shorter-term moving average, and the 50- and 200-day SMAs are generally considered the Wall Street standard.
When this happens, it indicates the stock’s longer-term trend higher has slowed way down, and it’s called a “death cross” because it often precedes a bout of lackluster — and sometimes even downright ugly — price action on the charts.
(On the flip side, a “golden cross” is when the shorter-term trendline crosses back above the longer-term trendline, often seen as a precursor to bullish price action.)
Historically, AMZN death crosses have coincided with several weeks of stagnation or even selling pressure, like we saw in late 2018 and 2019.
AMZN with 50-day and 200-day SMAs – “death crosses” at arrows
Courtesy of Stockcharts
Whether or not AMZN’s SMAs will make a decisive death cross is still to be determined, but we’ve been seeing sluggishness for a while now.
AMZN VIX on Life Alert
Also an ominous sign for most stocks?
AMZN’s share price is sinking in step with volatility expectations, which in my experience tends to indicate the stock is going even lower.
Here’s the “VIX of AMZN,” which you can see is nearly at an annual low, at 27.42:
VXAZN — the VIX of AMZN — courtesy of Thinkorswim
Get In, We’re Going Shopping
But, even if the technical stars looked more promising for AMZN, the fundamentals could take a hit after that record first-quarter growth.
With more Americans getting vaccinated, people are clamoring to do the things they couldn’t do in quarantine — weddings, trivia nights, fancy dinners … anything but sitting on their own couch.
And to look their best, I have a feeling people are also clamoring to get out of the Zoom sweatpants and into some nice, new gear …
Gear they can finally shop for and paw at IN PERSON …
In other words, the reopening could be a boon for brick-and-mortar stores … which Amazon is not.
In fact, I might actually …
BUY PUTS — DUN DUN DUUUN!!!
The AMZN June 3150-2900 put spread costs $38 — paying almost 4-to-1 — is an interesting purchase.
Your Only Option,
Mark Sebastian
