The stock market is struggling to find footing this year. Investors remain leery of what’s to come for several reasons. The most serious of them is the geopolitical unrest from Ukraine. The matter is still fresh and extremely serious, so there are a lot of grave questions looming. Today, we will examine how Amazon (NASDAQ:AMZN) stock investors can deal with this situation.
AMZN stock may have seen the trouble coming since the summer of 2020. While it had many opportunities to break out in force, it chose to linger inside a range. The action for about 18 months has been sideways and in a very wide range.
Normally this is good news because from such consolidation comes a strong base for breakouts. However, this is not a guarantee this time because of the current external potential headwinds.
In the end, this is one of the strongest companies on the planet. The current outside problems will subside and the stock will trade its own upside opportunity.
After a long stint of going horizontally, it becomes important for a stock to hold the lower edges. Else, it runs the risk of it becoming first a bearish catalyst, then overhead resistance. AMZN is close to that point, but it’s not too late to avoid the downside from it.
AMZN Stock Has Work to Do
Currently, AMZN is toying with the lower end of this persistent range. Therefore it cannot afford to fall below it, or else it will become very difficult to reclaim. Just like the rest of the stock market, Amazon is still well above the pandemic breakout. Sadly this means that there is plenty of space below to potentially fall through. If this geopolitical malaise continues, there is still another 25% at risk before hitting solid support from March 2020.
However, we’ve recently had two distinct crashes that established strong support zones. If the bulls can defend them, they can rebuild the ascending trends and rise above the danger zone.
First, there was the low from Jan. 24, which was scary. AMZN bounced sharply off it and bravely rallied 20% fast. Exactly a month later, the indices flash crashed even deeper and more dramatically. The bounce off these lower-lows were even swifter and more impressive than late January.
So far these relief rallies have not lasted, so their progress has been finite. Consequently the bears have established a lower-high trend since November. Now the onus is clearly on the bulls to change that behavior. This week and next, Amazon will need to exceed $3,120 per share to invite new buyers. Moreover, the resistance extends through another $100 per share higher. There are sellers lingering throughout just waiting to offload their shares. If by some miracle the bulls can clear $3,300, then they could end the sell-the-rip meme plaguing it.
The Indices Need to Help
AMZN stock cannot do this alone. It also needs the market to stabilize. Unfortunately, politicians are still negotiating via headlines, so stocks are reacting with high emotions. The fundamental earnings are breaking records, and that’s not just Amazon. Even smaller companies like SoFi (NASDAQ:SOFI) are performing well. Last night they reported record user metrics and grew sales 60%. At least investor reaction was positive this time on the headline.
For the rest of the week, there are extrinsic headlines to sweat. U.S. Federal Reserve chair Jerome Powell speaks twice, and a few of his buddies also are voicing opinions. Between the threats of global war, and an impeding quantitative tightening cycle, the bears have a strong tailwind.
I don’t blame the buyers for being shy in the meantime. I use charts and profit-and-loss metrics to overcome my emotions. What has worked is trading options to generate income from the AMZN steady range. The buy-and-hold investors have had a difficult time dealing with this, unless they were actively booking profits.
Longer term investors should probably sit tight during times like these. Having patience is a difficult ask, but it is the only way to get through this. Also we must have discipline, because everything looks enticingly low. Cheap can get cheaper, especially if the Russia invasion situation exacerbates. My fundamental assumptions are that the U.S. economy is healthy, which is a good thing. That’s why the Fed is trying to cool it down. But I must acknowledge the extrinsic risk from politics.
For example, the fundamental metrics for Amazon are beyond reproach. It is the picture perfect startup company that never quit being one. Total revenues doubled since 2018, without creating stock price bloat. Its price-to-sales ratio is a modest 3.4, half as cheap as Apple (NASDAQ:AAPL). Regardless of how high my conviction is in its success, I exercise restraint. While I trust it, I can’t say the same for the market overall.
Wall Street lost its mind with the pandemic, so we should not expect logical behaviors now. If I own shares, I wouldn’t add to my positions without geopolitical progress. Also investors who are looking to start new positions should only do so partially. Strategically selling put options instead of buying shares can leave large room for error. It might be worth it to also investigate buying options for share protection.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
