Amazon.com, Inc. (NASDAQ:AMZN) is scheduled to report its latest batch of earnings on Thursday, Feb. 2, after the close of trading. Looked at through a multimonth lens, AMZN stock has largely done nothing since last October, though it has seen some gyrations within this time frame.
Like I always say, “gambling” on a stock through its earnings announcement in hopes of a certain outcome (a rally or a selloff) is on average a low-probability bet. Even in the best-case scenario, this has a 50/50 chance of success.
Regardless of how good or bad a company’s outlook, earnings, sales or other metric is, the immediate- to near-term direction of any given stock following earnings ultimately depends on what large investors want to do with shares after the report. This might sound oversimplistic, but I find that many active investors often lose sight of the fact that above all, it’s supply and demand that dictates price direction. And supply and demand don’t always correlate rationally with news flow.
AMZN Stock Charts
Looking at the multiyear weekly chart of Amazon, we see that the latest steep rally since early 2015 has largely taken place within a well-defined up-trending channel similar to what we see in in other large-cap technology growth stocks such as Facebook Inc (NASDAQ:FB).
Note how well the yellow 50-week simple moving average has held as support over the past couple of years and how this has coincided with the lower end of the up-trending channel.
From this perspective, considering that AMZN stock tends to make big moves following its earnings reports, shares this week might either gravitate toward the upper end of the up-trending channel (toward $900) or retest the lower end of the channel around the low to mid-$700s.
That might not sound like much insight. However, it gives us a very well-defined trading range between $750 and $900.
All else being equal, a rally to the upper end of the range would be a better opportunity to sell or short the stock. A move to the lower end may provide better buying opportunities, following a bullish reversal.
Lastly, note the negative divergence between price and momentum over the past 12 months. The price of AMZN stock has continued to rise, yet momentum — as represented by the MACD oscillator at the bottom of the chart — is still pointing lower and making lower highs. This does not bode well for much further upside in the stock, and even a post-earnings rally may be better sold than chased higher.
On the daily chart, we see that the latest multiweek rally in AMZN, after bouncing off the 200-day moving average (red) in early January, once again has the stock back at its October 2016 highs near $840.
Active traders could look to buy/chase AMZN stock higher if and when the stock can break and hold above $850 on a daily closing basis following the earnings report. From there, a next upside target becomes the aforementioned upper end of the trading channel around the $900 mark. Any sudden bearish reversal would be used as a stop-loss signal.
Alternatively, if AMZN stock gaps lower and sells off following the earnings report, a next downside target in the mid-$750s comes into focus.
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