Black Friday and Cyber Monday are behind us, so it’s time for retail analysts to tally up the sales. In the meantime, shares of Amazon.com, Inc. (NASDAQ:AMZN) have fallen in five of the past six trading sessions, which thus far amounted to about a 5% drop. However, AMZN stock also still trades about 11.5% off its October highs. So if history is any guidance, Amazon remains at risk of a deeper drop — and sooner than later.
As I always do each time I discuss Amazon stock, let me be clear that I’m a staunch believer in this company, its business model and its ability to further innovate in the future. However, as an active market participant, I also have to look at both sides of AMZN and respect the price action.
And looking at the present state of AMZN stock, the near-term path of least resistance is lower.
For active investors and arguably also for a good many of long-term investors, just because Amazon stock is the hottest thing since sliced bread does not mean it has to be a buy at any point on its chart.
Timing one’s entries and exits in any stock can make a great difference in profits over the long haul. That’s no different here.
AMZN Stock Charts
On the multiyear weekly chart, we see that Amazon has seen several “corrective” phases along its steep rise. Since early 2014, AMZN has scrawled out two corrections — one that measured 20%, and another that measured 30%. Currently, shares are about 11.50% off their October highs. Just a couple of weeks ago, they were closer to 16% off those highs.
If these past three corrections are our guide, then AMZN stock should have at least somewhat farther to fall before a better buying opportunity arises.
From a simple moving average perspective, note that in this current corrective phase, Amazon has not yet pulled back to its orange 50-week simple moving average — something it did in two of the last three corrections.
On the daily chart, we see that the late September/early October rally in AMZN stock had an exhaustive character, and the down-gap following the late-October earnings report sealed the deal. The stock dropped below its yellow 50-day SMA, which just a few days ago was tested as resistance.
As a side note, when I last discussed shares of Amazon on Oct. 26, I offered that if the stock were to drop following Amazon’s earnings report, then a first downside target near $750 could quickly open up. This downside target was reached less than two weeks after the earnings report.
At the bottom of the daily chart, I added a ratio chart where I divided Amazon stock by the Consumer Discretionary SPDR (ETF) (NYSEARCA:XLY). On that chart, we can see that the recent weakness in AMZN did not just take place in absolute terms but also in relative terms versus other stocks in the consumer discretionary sector.
All else being equal, this could be further proof that AMZN stock has at least somewhat further to fall for the time being.
From my perspective, Amazon now has a next downside target near $700, followed by a possible second downside target closer to $650.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
