Online retailing giant Amazon (AMZN) had plenty of news surrounding itself on Cyber Monday. First, the Supreme Court declined to hear Amazon.com on an issue of state taxes, and secondly, its feature in CBS’ (CBS) 60 Minutes on Sunday night brought up some interesting future plans.
In the interview with Charlie Rose, AMZN founder and CEO Jeff Bezos said that the company is working on the use of drones for premium package delivery to consumers within close enough proximity of a warehouse (or as they call it, a fulfillment center). The project, named “Prime Air,” would use Octocopter drones to deliver packages weighing five pounds or less direct to customers doorsteps in 30 minutes.
Of course, the project — as Amazon stock investors have come to expect from Bezos — is ambitious. A bit of a new wrinkle is that this project is subject to approval from the FAA. Furthermore, safety and spying concerns are already making the rounds, making for additional headwinds for now. Nonetheless, the 60 Minutes video went viral Monday.
However, Amazon stock — after an initial rally intraday that brought AMZN to new all-time highs of $399 shortly after the opening bell — closed the day off 0.34% and left an exhaustion tail behind on the daily chart.
Given AMZN’s steep 30%-plus rally since early October and its 40% rally since late August, it should not be surprising to see a concerning steep slope on the Amazon stock chart. But what’s even more noteworthy, from a risk/reward perspective, is the constantly increasing slope of AMZN’s multiyear chart, looking back to the 2009 lows.
While one would expect a steep inline after a broader market capitulation low as we saw in early 2009, it is concerning to see a steep slope go steeper, or in the case of AMZN, go nearly vertical. Momentum often can keep such slopes intact for longer than short-sellers can remain solvent, but through the medium-term lens, Amazon stock isn’t to be chased higher — at least not those looking for the best risk/reward opportunities available.
On the daily chart of Amazon stock, zooming in on the sharp rally off the late-August reaction lows, the slope of the chart becomes more impressive still. As a measure of near-term overbought/oversold readings, I often use the 8- and 21-day simple moving averages, above both of which the stock is currently trading.
Monday’s intraday reversal left a further warning sign for investors, making this not a great stock to buy now. AMZN needs consolidation time badly, and I will revisit the stock once some of the air has come out of it.
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 e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.