Online retailing giant Amazon (Nasdaq: AMZN) has gotten off to a rough start in 2014. The stock has slipped from the $400 level to a low of $288 earlier this week for a loss of 28%. The good news for AMZN bulls is that there could be some relief in sight from a key support level.
The weekly Amazon stock chart shows that the low this week came right at the stock’s 104-week moving average. The pattern on the chart looks eerily similar to what happened at the end of 2011. The percentage decline back then was a little over 30% and then the stock found support at the 104-week moving average. The length of time is even similar to what we have seen over the last few months. In 2011, from the high to the low was 11 weeks. This time it has been 13 weeks if indeed the low was put in this week. Even the slow stochastic readings are similar.
For the sake of looking at the whole picture, I also looked at the monthly Amazon stock chart. You can see the support of the 24-month moving average hit this week and in 2011. However, there are two sources of concern on the monthly chart. You can see how the trendline connects the lows since 2009, but that trendline is still approximately 10% below the current price. The other factor is that the monthly stochastic readings haven’t quite reached as low a level as they did in 2011, but they haven’t reversed yet either.
Usually I try to bring you a stock that looks ready to rally based on the chart and also has strong fundamentals and some pessimistic sentiment indicators. With Amazon stock, the only real drivers come from the chart.
The sentiment composite is only 3.80 thanks to a short-interest ratio of 1.1, a put/call ratio that is at its lowest reading in the past year and having almost 75% of analysts rate the stock as a “buy”. This doesn’t give us much hope for a sentiment based rally.
Even the fundamentals aren’t really screaming for you to buy Amazon stock. The three-year EPS growth rate is -53% and the annual ROE is on 3%.
The bottom line is that Amazon stock looks like it is ready to rebound. The problem is that the only drivers right now are technical ones. Ideally you would want to see the stock pullback to the trendline while the sentiment became less optimistic, but based on what I see on the weekly Amazon stock chart, I think it is worth a shot with a target of 50% within the next nine to ten months. I would also set a stop loss of a weekly close below the trendline. This still gives you a reward to risk ratio of approximately 5-1.
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