It’s almost Christmas. But even if you’re going to ring the virtual register on Amazon.com (NASDAQ:AMZN), the best gift for investors remains a short position in Amazon stock.
In some ways and sadly enough, it feels as though the Christmas holiday has turned into an Amazon Day of sorts. But please don’t give the gift of Amazon stock as a stocking stuffer or as a present to yourself.
Don’t get me wrong; AMZN stock still has a bright future ahead of it. The fact is the trend of shopping online continues to grow and currently stands at just 9% – 10% of total retail sales. What’s more, the bulk of today’s online purchases are made on Amazon.
AMZN dominates the e-commerce market with nearly 50% of online sales and remains well ahead of brick-and-mortar competitors such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) and online marketplace eBay (NASDAQ:EBAY). But that doesn’t mean that you should buy Amazon stock today.
The underlying problem with buying shares of Amazon right now is that while the trend of online shopping growth is obviously nowhere near peaking, investors who like Amazon stock because of that continuous trend have established an intermediate top in AMZN stock.
The Monthly Chart of Amazon Stock
As the monthly chart emphasizes, AMZN has enjoyed a mind-boggling bullish run over the last decade. But a more bearish price trend may have started after the shares fell out of a rising-wedge top.
Bah humbug? It’s true that bullish investors can counter that AMZN stock has already corrected by more than 30% over the past couple months and that the damage has already been done. Furthermore, AMZN stock has set up with a monthly doji or hammer-style candlestick which hints at an intermediate bottoming pattern.
Nevertheless, it’s hard to be optimistic that a meaningful low is in place.Given the recent relative strength of Amazon stock and the weakness of the overall market, preparing for more downside has our vote.
Trading Amazon Stock
For like-minded investors who also have the stomach to handle potential volatile price swings within a building bearish trend, shorting AMZN makes sense. A stop above $1800 to avoid exiting prematurely without the monthly hammer candlestick triggering is the preferred strategy.
My price target on AMZN stock is $1000. That provides a nice risk-reward ratio, but also makes sense technically.
The 50% retracement level from the financial-crisis low, a test of a long-term channel support line and a bullish gap from 2017 which preceded this year’s rising wedge-topping pattern all come into play near a test of $1000. And in today’s market where so many growth stocks are already challenging similar technical levels, this seasonally chilly forecast looks very realistic.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
