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Is It Finally Time to Bet Against AMZN?

Amazon stock looks overbought medium-term


beatthebell_185x185Online retailing giant Amazon (AMZN) reported its third-quarter earnings results last Thursday.

As usual, Amazon earnings were in the red, with AMZN losing 9 cents per share. That was in-line with estimates, though, while the top line actually beat expectations. Amazon sales climbed 24% year-over-year to $17.09 billion for the quarter vs. estimates of $16.77 billion.

Amazon stock investors continued believing in the company’s growth story thanks to such strong sales. And the stock loved all of the news as investors pumped AMZN higher to the tune of 9.4% on the day on Friday.

A little more than three weeks ago, I discussed how Amazon stock continues to frustrate the bears and that the long-side still has the better odds. Fast forward to today and the stock is giggling in green roughly 13% higher.

Let’s look at the AMZN chart to see where we stand.

Last Friday’s vertical leap for Amazon stock not only likely buried the last of the bears, non-believers and other naysayers, but it also pushed the stock out of its five year up-trending channel on the weekly chart below.

From this point of view, AMZN stock’s odds on the long side for the time being have dramatically worsened and profit-taking likely is the prudent course of action.

amzn amazon stock
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On the daily chart, AMZN stock’s nearly 22% rally since Oct. 9 also looks more than steep and not something to chase on the long side for the time being.

For this near-term trading frame however, the question is how soon Amazon stock will revert back toward its long-standing channel (at least toward the $320 to $340 area) from the above chart.

There is a distinct possibility that instead of reversing lower immediately, AMZN stock will consolidate near its highs, forming a tighter pattern from which it could push higher still. This would allow the more nimble traders to trade Amazon stock from the long side with quicker trades.

Beyond the near-term, however, a great strategy for Amazon stock is to sell far out of the money calls or call spreads as it allows for more flexibility and time than leaning against the stock on the short side.

amzn amazon stock
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.

Article printed from InvestorPlace Media,

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