3 Reasons Amazon.com, Inc. (AMZN) Stock Could Retreat

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AMZN stock - 3 Reasons Amazon.com, Inc. (AMZN) Stock Could Retreat

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It’s hard to find Amazon.com, Inc. (NASDAQ:AMZN) bears most days, especially when the stock is continually resetting all-time highs. Less than 2% of Amazon’s float is sold short, meaning even at these heights, very few bears are willing to bet against AMZN stock.

Yet, here and there, contrarians get the best of Amazon, which has been prone to the occasional sharp setback amid its multiyear race through the stratosphere. The start of 2016 saw Amazon shares pull back by more than 25% in about a month-and-a-half, and AMZN yielded about 15% of ground between mid-October and mid-November of last year.

In fact, even I’m a long-term bull on Amazon, but I’m also cautious — it pays to be. So right now, I’m paying attention to three near-term headwinds that could keep Amazon stock from pushing to even higher prices, and could make AMZN stock a good prospect for quick bearish options trades.

Here’s a look at three things that could hold Amazon back over the next month or so:

Headwinds for AMZN Stock

A Recent Defeat: Amazon just announced yesterday that it’s putting the kibosh on Quidsi, the operator of six shopping sites, foremost of which is Diapers.com. While AMZN isn’t known for making big-ticket acquisitions, the Quidsi purchase in 2011 for $545 million still ranks among the company’s top five.

The rationale?

“We have worked extremely hard for the past seven years to get Quidsi to be profitable, and unfortunately we have not been able to do so. Quidsi has great brand expertise and they will continue to offer selection on Amazon.com; the software development team will focus on building technology for AmazonFresh.”

AMZN is known for testing ideas with the willingness to accept failure, but there’s something to be said about that failure a.) coming from an acquisition and b.) dealing with the core business of online retail.

Quidsi has an additional barb that could stick in Amazon’s craw. Co-founder and former CEO Marc Lore, who was brought over to Amazon as part of the acquisition, left after a few years to found Jet.com … which Wal-Mart Stores Inc (NYSE:WMT) bought out in 2016, giving the big-box retailer much more ammunition on the online front.

Amazon Go Delays: Amazon had Wall Street and Main Street alike singing of the coming death of other brick-and-mortar grocers in late December when it announced Amazon Go — a new store concept that would change the way consumers shop offline.

The concept: Customers walk in and activate the Amazon Go app. They’re then free to walk about the building, shop as they like, and leave without checking out. Instead, it uses sensors and other technology to determine what you’ve bought, and it charges you accordingly.

This announcement drove a lot of excitement in AMZN stock, but the company recently admitted that it’s not ready for a proper launch, and might not be for some time. Amazon, which is testing the concept in Seattle, can’t track more than 20 customers simultaneously and is having difficulty tracking items once they’re in customers’ possession.

So now, whereas Amazon was expecting a public launch by the end of March, the timetable has been pushed back indefinitely, dependent on when the company works out the kinks.

For what it’s worth, this isn’t necessarily a bearish development for Amazon stock so much as it is … well, a delay. While investors were rabid about the concept, seeing the actual practical application will simply take more time to play out. In a way, AMZN’s prudence is a positive, not rushing the concept to launch and instead making sure that when Amazon Go goes live, it’s on point.

Technicals: On the upside, Amazon’s push to all-time highs has cracked any sort of overhead technical resistance. The stock is now trading above all of its major moving averages after bouncing off its 50-day MA just a few days ago.

AMZN stock chart view 1

In fact, the only real downside is that the stock is starting to look overbought from a technical perspective according to the Relative Strength Index (RSI).

It’s not a perfect guide, and many stocks can continue to rise despite greatly overbought RSI. However, AMZN stock tends to respect this indicator — for instance, the October-November decline came after just a couple of weeks of overbought readings here.

Bottom Line on AMZN Stock

None of these three headwinds alone is a reason to worry about Amazon shares over the long haul, or even for the back half of this year.

And valuation isn’t worth mentioning, other than to say that while AMZN is trading at a triple-digit forward price-to-earnings ratio, that’s never really mattered.

Nonetheless, Amazon stock is starting to look technically frothy, by its standards, and with the company’s next earnings report not due until late April, minor negative drivers could get the best of shares for the next month or so.

This could be a good time to buy puts on AMZN, or attempt other bearish options strategies that benefit from flat to slightly lower trading.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/3-reasons-amazon-com-inc-amzn-stock-could-retreat/.

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