Amazon Remains a Tricky Bet Ahead of Earnings

  • The price of Amazon (AMZN) remains trendless.
  • Its next earnings announcement arrives in nine days, adding further short-term uncertainty.
  • The options market provides multiple ways to elevate the odds if you’re inclined to make a bet on AMZN stock before the event.
Amazon (AMZN) logistics center in Szczecin, Poland.

Source: Mike Mareen / Shutterstock.com

Amazon (NASDAQ:AMZN) has done a lot of floundering lately. The e-commerce giant emerged from the pandemic on a rocket ship. But by July 2020, most of the gains were baked in and AMZN stock hasn’t sustained any forward progress since. It ended last year up 2%, which is a veritable snoozefest for a stock with a history of dazzling shareholders.

So far in 2022, prices are down almost 8%. If you want a silver lining, the Nasdaq 100 index is down more than 14%, so Amazon is still outperforming by a modest margin. I think you can chalk that up to its fortress of a balance sheet and massive spigot of cash flow.

Remember, it is unprofitable growth stocks that are under the most pressure. The problems plaguing AMZN stock aren’t unique. Inflation worries, soaring interest rates and the ongoing Russian invasion of Ukraine continue to hamper asset prices as investors grapple with increased uncertainty.

These conditions have created a host of uninspiring charts for the broad markets and the technology sector. And it’s been too much for the optimism of Amazon’s upcoming 20-for-1 stock split to counter fully. The result is a share price that finds itself meandering in a neutral range. Let’s take a closer look at the price action, then map out three trade ideas to swing into earnings.

AMZN Amazon $3,143.84

AMZN Stock Charts Spell Neutrality

The purpose of analyzing the weekly chart is to reveal longer-term trends plus bigger support and resistance levels that could be in play. It’s obvious how stuck prices have become when it comes to the larger trend.

Though we’ve seen the range shift slightly over time, AMZN stock has essentially been pinned near $3,200 for nearly two years. Because I’m a believer in the relationship between pivots revealing more than anything else, let’s consider the last few swings.

Amazon (AMZN) stock weekly chart with trading range.

Source: The thinkorswim® platform from TD Ameritrade

This year began with a sharp decline that threatened to break prices outside the range. But then a double bottom formed, denying bears’ attempt to continue the downtrend. Then, a higher pivot high formed, suggesting bulls were making a comeback.

We’ve since declined for four weeks straight, and momentum is slowing. A higher pivot low could be in the making here, but it makes for a highly messy chart when you throw everything I just outlined together.

Mixed signals abound, which is, again, symbolic of a sloppy trading range. The bottom line is the weekly chart gives directional plays little edge. We could dive deep into the daily time frame, but there’s no need. It echoes the neutrality of the larger time frame.

Pick Your Play

If you’re willing to trade stock options, you don’t have to make a purely directional bet. Instead, you can build a position that profits if AMZN stock remains in a range. Or, if you want a slight directional bias, you can structure the trade so you have a large margin of error.

If you’d rather lean long than short into earnings, consider selling far out-of-the-money put spreads. Alternatively, if you think prices are more likely to fall after the event, bear calls are the way to go. Finally, if you lack a directional opinion and instead want to build a position that scores if Amazon doesn’t move as much as expected, iron condors are the way to go.

Bull Trade: Sell the May 20 $2,700/$2,680 bull put spread for $2.50. Consider this a bet that AMZN stock will stay above $2,700 for the next month. The market is pricing in an 85% chance of success.

Bear Trade: Sell the May 20 $3,460/$3,480 bear call spread for $2.30. This wager wins if prices remain below $3,460. The probability of profit mirrors the bull trade at 85%.

Neutral Trade: Sell the May 20 $2,660/$2,640 bull put and $3,480/$3,500 bear call for $4.30. This trade offers the highest potential return of the three at 27%, but the probability of success is slightly lower at 76%.

On the date of publication, Tyler Craig 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.

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