On the calendar, 2019 has been a great year for Amazon (NASDAQ:AMZN) and its shareholders. At the same time, the past 12 months paint a potentially much different and bearish verdict facing AMZN stock on and off the price chart. Let me explain.
It’s been a difficult few weeks for the broader market. The S&P 500 is down by about 4.5% from its relative highs as August winds down. At the same time, AMZN stock is off roughly 13%. But don’t feel too sorry for Amazon investors. Shares of AMZN are still up 19% in 2019. And that of course is on top of dazzling returns in excess of 2,200% since the nadir of the financial crisis 10 years ago.
But it should be remembered, bull markets like Amazon’s aren’t impervious to bearish cycles. Further, with the historically volatile months of September and October nearby, as well as other challenging circumstances brewing for AMZN stock, investors may be smart to heed this period’s bearish tendencies and prepare for the worst.
Amazon Stock Faces Major Risks
For starters, the diversified tech giant is at the center of antitrust investigations by U.S. authorities which began in earnest this year. Sure, fellow tech giants Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) are under similar legal heat. But other than misery loving company, the lack of clarity is a potential strike against owning AMZN stock.
InvestorPlace’s Tom Taulli recently did a nice job of detailing other risks AMZN is currently or will soon be wrestling with.
Amazon’s dominant cloud position and the associated boon to the company’s top- and bottom-line growth over the past few years will invariably shrink. A maturing market and continued competition from Microsoft (NASDAQ:MSFT), International Business Machines (NYSE:IBM) and others eating away at margins and market share is sure to make that a reality going forward.
Another problem Amazon stock faces is replicating the kind of growth the company’s cloud unit has ushered in. Within established markets like healthcare, Amazon faces entrenched and well-funded players. Even if there is success, it’s not going to parlay into the type of growth the cloud has offered Amazon shareholders.
Also, Amazon’s chance for the same kind of success in less-exploited markets or in being the first to the table in seizing the next big investment scheme, is in itself a tough proposition. But with CEO and founder Jeff Bezos’ attention increasingly focused outside of Amazon and towards places like Hollywood or his private space venture, a similar triumph lessens as well.
Lastly, on the price chart, Amazon’s wherewithal is also looking questionable and ready to set up a much larger bearish phase for shares of AMZN.
AMZN Stock Daily Chart
It’s make-or-break time for AMZN stock, but the expectation is that the bears are bound to prevail. Currently shares are in an uptrend and testing a trend line, its 200-day simple moving average and key Fibonacci levels for support. Now with Amazon confirming a daily chart hammer low, buying on weakness has its merit.
But AMZN also has technical problems. It’s our belief today’s bulls need to respect those risks and their much larger implications.
Over the last year Amazon stock has put together a double top pattern. Shares have also broken a couple other trend lines formed during its rally from last December’s corrective bottom. Together, that’s a warning not to be taken lightly. And with stochastics rolling over from overbought territory, a third trend line failure and dismantling of today’s hammer signal could turn into a nasty divorce of sorts for Amazon stock and today’s wedded investors.
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.
