Amazon Faces Bearish Pressure Ahead of Key Earnings Amid Oversold Conditions and Market Concerns

Technical Analysis

Amazon.com, Inc. (AMZN) closed at $182.50 on July 26, 2024, reflecting a modest uptick of 1.47% from the prior day. The stock is showing signs of weakness with a Relative Strength Index (RSI) of 23, indicating oversold conditions. The price is currently positioned below its 50-day moving average of $187.14, suggesting a bearish trend in the short term. The 200-day moving average at $167.30 provides a longer-term support baseline, further indicating possible downside risk.

From a volatility perspective, the Average True Range (ATR) is approximately $2.63, implying modest price fluctuations expected in the near term. Key support levels are identified at $179, while resistance is solidifying around $186, with any breakout above this level potentially signaling renewed bullish momentum.

Fundamental Analysis

The market capitalisation of Amazon stands at approximately $1.90 trillion. The company has an earnings per share (EPS) of $3.58, accompanied by a high price-to-earnings (PE) ratio of 51.24, signaling elevated market expectations relative to its earnings. The upcoming earnings announcement on August 1, 2024, will be pivotal for short-term volatility and investor sentiment.

Despite recent adjudications clearing Amazon of safety regulation charges regarding its warehouses, broader market concerns persist, particularly in relation to competition with discount retailers such as Temu and Shein. Additionally, the reported financial performance of Amazon's Twitch acquisition raises questions about the company's capital allocation strategies.

The discounted cash flow (DCF) valuation estimates intrinsic value at approximately $53.56, significantly lower than current market prices, suggesting that the stock may be overvalued based on this model.

Predictions

For the next trading day on July 29, 2024, AMZN could potentially see a gap up or down depending on the sentiment stemming from the earnings report slated for August 1. If the report is positive, there may be a short-term rally, but caution is warranted given current technical indicators.

Looking ahead to the upcoming week, expectations should consider heightened volatility as earnings season progresses. Surpassing resistance at $186 could suggest recovery, while a breakdown below $179 may prompt further declines.

Long-Term Investment Potential

Although Amazon remains a leading player in e-commerce and cloud computing, current evaluations and competitive pressures suggest caution. The intrinsic value indication (DCF) significantly below market price, along with an elevated PE ratio, may hinder the stock's appeal for long-term growth unless operational efficiencies and earnings growth can be significantly improved.

Evaluation

Given the current analysis, AMZN is classified as a 'Hold' candidate. The reasons include technical indicators signaling potential downside risk, fundamental concerns surrounding competition and profitability, and high expectations reflected in its PE ratio. Investors may consider holding their positions while closely monitoring the financial results from the upcoming earnings report to reassess the stock's potential moving forward.