Sign InAmazon Stock Experiences Bullish Streak, Technical Indicators Indicate Potential Pullback
Summary
Amazon.com, Inc. (AMZN) is currently experiencing a bullish streak and flirting with its highest valuation in the past year, but technical indicators suggest that the stock may be ripe for a pullback as it is heavily in the overbought territory and a reversion to mean prices could be imminent, however, strong fundamentals, recent positive news, and anticipation of positive earnings results indicate that the stock's performance may continue to be bullish in the upcoming week. (Analysis conducted on 01/28/2024)
Technical Analysis
Amazon.com, Inc. (AMZN) closed the previous trading day at $157.75, reflecting a modest increase of $0.88 or 0.56%. The trading session saw the stock fluctuating between a low of $154.55 and a high of $158.51, which also represents the stock's 52-week high. This suggests that Amazon's stock is currently experiencing a bullish streak, flirting with its highest valuation over the past year.
Examining technical indicators, the Relative Strength Index (RSI14) of 81 indicates that AMZN is heavily in the overbought territory, typically a sign that the stock may be ripe for a pullback as some investors could decide to take profits. The 50 Day Moving Average (DMA) at $149.28 and the 200 DMA at $131.89 further demonstrate the stock's upward momentum in the medium to long term. However, the distance between the current price and the moving averages can also signify that a reversion to mean prices could be imminent.
The Moving Average Convergence Divergence (MACD) over the past three months is 0.457756, which suggests a positive price momentum in the short term. The Average True Range (ATR) indicates moderate volatility, with the ATR at roughly $1.89.
The previously defined stop-loss is set at $151.78, giving traders a reference point for potential exit should the stock reverse direction. At present, no immediate resistance level is identifiable, which could imply a prospect of further upside if the momentum continues. Support is established around $149.97, which could serve as a consolidation ground in case of a pullback.
Fundamental Analysis
Amazon has a significant market capitalization of approximately $1.63 trillion, affirming its heavyweight status in the market. The stock's Price to Earnings (PE) ratio stands at 82.59, highlighting investor's high expectations for future growth, albeit this also reflects a premium valuation against the broader market.
The recent announcement that Amazon plans to invest $10 billion in two data center complexes in Mississippi is a solid indicator of the company's strategic growth initiatives and could provide substantial future cash flows that are not currently reflected in the discounted cash flow (DCF) valuation of $59.72.
Looking ahead to the earnings announcement on 02/01/2024, market participants seem to anticipate positive results as hinted by the strong buy consensus amongst analysts and the high target consensus of $170.19. With EPS at $1.91, Amazon's profitability is supported but will need to be monitored closely in relation to the high PE ratio.
Recent news highlights the strength of the consumer discretionary sector and by extension, Amazon's potential to capitalize on this trend. A favorable note from a university professor on Amazon's financial statement analysis further cements the notion that the company's investments during the pandemic might be starting to bear fruit.
Predictions for Stock Performance
Given the current technical overbought condition but combined with a strong fundamental backdrop and recent positive news, AMZN might experience some volatility on the next trading day. It would not be surprising to see short-term traders locking in gains, possibly leading to a minor pullback towards the support level before stabilizing or continuing its upward trajectory. For the upcoming week, barring any negative catalysts, the bullish sentiment stemming from the anticipated earnings report might continue to provide tailwinds for the stock's performance.
Overall Evaluation
Considering both technical and fundamental perspectives, AMZN falls under the 'Hold' category at this juncture. The combined factors of a highly overbought state and a premium valuation on one hand, and strong market position, recent strategic investments, and positive analyst consensus on the other, support a cautious stance. Investors might be prudent to await the upcoming earnings announcement for potential revaluation triggers before making further investment decisions. Existing shareholders might consider holding to capitalize on the stock's potential upside while new investors may watch for more attractive entry points or post-earnings clarity.
