Amazon Stock Is on Sale

  • Amazon (AMZN) is getting hit on macro and company specific AMZN stock worries.
  • The sell-off in Amazon shares offers earnings and technical value.
  • A vertical with money management offers superior upside potential with ironclad protection.
Amazon (AMZN) building at night time with logo light up on building
Source: Mike Mareen / Shutterstock.com

Monday is seeing a confirmed rally continuing to come under harder selling pressure following last week’s bearish market reversal. And with the large-cap, tech-heavy Nasdaq down 1.5%, shares of Amazon (NASDAQ:AMZN) are in lockstep with AMZN stock shedding 2.2%.

Driving the declines on Wall Street and risk-off behavior, investors are reacting to further ominous signs for equities. The conflict in Ukraine and the Covid-19 BA.2 variant continue to wreak havoc on global economies.

Also, Treasury yields are hitting multiyear highs in the face of supply and demand-driven inflation, as well as an increasingly hawkish U.S. central bank that is negatively impacting market sentiment.

Macro fears also appear to be playing out within Amazon’s sprawling web of businesses. The company’s reliance on healthy consumer spending, steady transportation, labor costs and a smooth supply chain are all seemingly conspiring against AMZN stock. But believe it or not, it is far from the end all be all.

Today, let’s look at what is going right for Amazon in 2022 and beyond and why those factors are shaping up nicely for a hedged strategy to smartly leverage an investment in AMZN stock.

AMZN Amazon $3,022.44

More Than E-Commerce

As a consumer, it is easy to simply think of Amazon as a company you likely rely on for ever-faster and reliable shopping, with the teaser of also fulfilling your entertainment needs through its Prime video. And AMZN is just that for many of us.

But two key growth drivers for AMZN stock are Amazon Web Services (AWS) and advertising. February’s earnings release saw revenue increases of 40% and 32%, respectively, compared to the year-ago period.

What’s more, for AWS’ top-line, it marked the fourth straight quarter of accelerating growth. And while your purchase on Amazon obviously still matters, AWS contributed a staggering and incredibly meaningful 74% of AMZN stock’s operating profit in 2021.

Ad sales of more than $31 billion in 2021 grew by 32% year-over-year. That is more than Alphabet’s (NASDAQ:GOOG) YouTube, but without the privacy-related ad challenges facing the popular app.

What’s more, the segment is nearing 10% of AMZN’s total revenues on the back of its sticky plus 200 million Prime members who are now paying a bit more. And if you’re like me, you’re not losing any sleep over it compared to other price hikes left and right.

AMZN Stock Is on Sale Today

Amazon (AMZN) is offering discount to earnings and technical value on pullback in share price
Click to Enlarge
Source: Charts by TradingView

Right now, investors are also able to get in on Amazon’s burly growth at a compelling discount and distinct technical advantage. Combined with last week’s decline of just over 5.5% in AMZN stock, shares are now testing the 50% retracement level of the rally off the March low.

In and of itself, the Fibonacci level is typically a popular percentage decline to consider for stock purchases on weakness. But in a more bearish market like today’s, it is also likely to be as well-received. Fortunately, Amazon shares have a few more items to back up a buy decision.

On the illustrated daily chart, readers can see Amazon’s market price is also challenging February’s immediate, post-earnings reaction low, whose quarterly beat resulted in shares rocketing higher by more than 13.5%.

As the price chart also reveals, it is not the first time investors could buy here. In fact, shares have gone substantially lower. Bullishly though, a full-blown corrective double-bottom formed at the mid-March corrective low does make this challenge more attractive.

Furthermore combined with an upwardly pointing Bollinger band acting as nearby support and an oversold stochastics on the cusp of an advantaged bullish crossover, AMZN stock is in a prime area to buy on weakness.

Buying AMZN Stock Today with Less Risk

All told, AMZN stock is offering strong evidence off and on the price chart that the current share weakness is temporary and offers value for buyers.

This type of pullback entry can be further improved by setting a reasonable stop-loss if shares begin to technically invalidate the setup.

As discussed in late March, if AMZN falls below $2,925, it points at a potentially much larger bear market. That would put shares slightly below the 62% Fibonacci support level. A move beneath $2,925 would also look ominous in relation to Amazon’s monthly candlesticks formed the past couple months.

For positioning, in conjunction with technical-based money management, I’m favoring the use of an intermediate-term bull call vertical.

Spreads of this type can leverage upside profits in AMZN stock, while having iron-clad and vastly-reduced downside exposure compared to owning shares. This makes even more sense in today’s risk-off investing environment.

One combination that fits in well with the size of AMZN’s corrective base and shares regaining a footing back into the larger corrective base is the August $3,150/$3,500 bull call spread.

On the date of publication, Chris Tyler 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.

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 market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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