Kicking off the first day of the new decade yesterday, Amazon (NASDAQ:AMZN) stock was positive up 2.72%. This will hopefully be an omen that AMZN stock is done underperforming the markets — especially its technology sector. For the last 12 months, it’s only up 23% while Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) are up 35%, 55% and 90%, respectively, for the same period.
In spite of Amazon having some catchup rallying to do, I suspect that there will be better entry point than now. So, new investors should wait for a dip or buy the breakout above $1,920 per share. This is definitely not a knock against the company’s prospects, as I am a big fan of it.
However, two things are true at the moment. First, from the timing perspective, the first few days of the year are carrying huge “Santa rally” momentum. This was fueled by extremely positive rhetoric from China, as they injected more cash into their economy by lowering the bank reserve requirements; This will wear off, though.
Second, from the level perspective, I wrote about an upside opportunity in AMZN stock on Dec. 13. I noted that it was basing to rally into new highs, and the idea there was to go long while most experts hated it. Consensus on Wall Street is that Amazon is in spending mode, so they avoided it. My thesis was the opposite because when the Bezos team spends, they usually come up with huge benefits soon thereafter.
After my write up, the stock rallied through the end of the year to 9%, which is great. However, from a trading perspective, I worry a little. When so much green comes this fast, I prefer to lock the profits. For the investors that are still looking to chase AMZN stock, it will probably be better to snipe an entry on a pull back.
Amazon Stock Will Still Set New Highs
Don’t let my cautious note fool you, because I still think that Amazon is a long term hold. If the stock markets are higher in the future, then AMZN stock is leading it up! But for now, I want to see what happens around $1,900 and $1,920 per share.
This was my immediate target from December, and $1,980 was my secondary one. If the bulls can fill the gap to $1,975 per share, then the momentum could carry them to new, all-time highs.
Click to Enlarge
Central banks are still very big on quantitative easing (QE), so investors feel safe and they lower their standards when picking stock levels. They usually overlook potential pitfalls and over commit. This will eventually reach a breaking point, and markets will need to rectify the imbalance so they can continue rising.
In short, a lot has happened since December. I do still think AMZN stock is one to own for a long while, but for the short term, there may be potholes.
This is not a dis against the company, nor have I changed my mind about its prospects. My concern is that the whole equity market is extended and we could trip up. If we do, Amazon will be vulnerable for fast falls. The recent profits came too fast, which puts it in weak hands. Therefore, the bulls need a drop to shake a few of them out so they’d have a better base to continue higher.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
