Shares of Amazon (NASDAQ:AMZN) have been on fire throughout 2018, rising an impressive 67% so far on the year. Even more impressive, Amazon stock is up more than 100% over the past 12 months, as momentum has stayed strong in this now $1 trillion name.
That may make investors leery to invest in Amazon. It doesn’t have the balance sheet strength of Apple (NASDAQ:AAPL), another name we like in the fourth quarter, and its valuation is wildly elevated when using traditional methods.
But here’s the thing: Amazon isn’t a traditional company. Had all those bears sold AMZN stock short five or ten years ago and stayed short they’d all be bankrupt by now as it was overvalued then too.
Clearly Amazon and its investors operate under a different set of rules. Those that want to fight it can do so at their own peril. Of course, one day the trend in Amazon stock will falter and shares will decline. It could happen next week, next month or next quarter. There’s no sure way to predict the short-term action of any stock or index.
But because of Amazon’s growing power in growing markets like ecommerce, cloud and advertising, investors continue to give CEO Jeff Bezos and his team the benefit of the doubt. Does that make it a name to hold through the end of the year?
Year-End Catalysts for Amazon Stock
When Amazon reports its fiscal third-quarter earnings results later this month, it will include the company’s results from Prime Day. Those results should be monstrous and help give Amazon an even greater boost to revenue. It essentially created a Black Friday shopping event in the middle of summer. Brilliant.
The company is heading into the ever-important holiday season. The conference call will be key but regardless, it should be a good fourth quarter for Amazon. That could mean good things for names like United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) as well.
Last quarter, the company’s earnings of $5.07 per share came in more than double consensus expectations. Clearly Amazon has momentum in its main business right now.
Retail will certainly be a catalyst this quarter, but so too will Amazon Web Services. We’ve seen stellar cloud growth out of companies like Adobe Systems (NASDAQ:ADBE), Microsoft (NASDAQ:MSFT), Salesforce (NYSE:CRM) and others. Given that Amazon is atop the leaderboard in terms of market share, there’s little question that it too will continue to do well thanks to the cloud.
Cloud stocks have the wind to their backs and, as I said with Amazon earlier, eventually that wind will shift direction or at the very least die down. But until that happens, there’s no reason to bet against these stocks.
It’s impressive to see a company the size of Amazon growing at the rate it is. Expectations call for 32% revenue growth this year and almost 300% earnings growth. Still, valuing AMZN is tough, because there’s just no telling how big this juggernaut is going to become. That makes it a perfect dip-buying name.
Trading AMZN Stock Price
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This is where the action can get a little tricky. So far, Amazon stock remains in a strong uptrend. That’s shown by the repetitive bounces off the 50-day and uptrend support (black line).
However, with the decline in the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) and as yields climb, it may be worth asking if AMZN stock will come under short-term pressure, tech stocks don’t like higher rates. If so, first see how Amazon handles trend support and the $1,900 level.
If it gives way, shares would be susceptible to a pullback to the $1,850 level. This area (highlighted on the chart as “No. 1”) is a series of three levels conveniently spaced about $100 apart.
Each level was prior resistance that eventually gave way and became support. Getting to support No. 2 seems unlikely without a poor earnings reaction later this month or a market wide correction. Support No. 3 almost certainly needs one of those two negative catalysts (or both) to get it there.
However, the bottom line is simple: Amazon stock is a buy-on-dips name until the strategy fails. If you’re long-term bearish AMZN, your best course of action may be to treat as you would your sentiment’s mascot: Leave it be.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long CRM and AAPL.
