Amazon Takes The Plunge

As we wrap up another week, I’m always interested to learn the trades that people are talking about, winners and losers. But it always seems the most interesting trades are the ones that people didn’t take, the trades they missed!

Recently we’ve been focusing on trades within the FX space so this week I decided to cast my net a little further afield and spoke with some stock traders I know and the move that everyone is talking about is the roughly 7% drop in Amazon. So, if you got in on this trade, I’m sure you’re looking forward to a weekend of celebration. If you missed out? Just remember, there’s always next week. So, let’s take a look at what happened and why this was a great trade.

What Sent Amazon Lower?

At first glance, the sell-off in Amazon shares seems counter intuitive. The company posted stellar Q1 earnings at the end of last week with EPS almost double the target Wall Street was looking for. Price had surged back up to its highest level since September last year and it was looking good for the online retailer before selling kicked in and drove price firmly lower. So, one of the big drivers behind this sell off was merely profit taking. Amazon was expected to have a great earnings release, price rallied firmly into the release, hit previous highs and traders cashed in. This is a common theme around these events.

Bezos Sells More Stock

Now, this situation was exacerbated this week by news that Amazon CEO Jeff Bezos has sold around $2 billion in stock following that earnings release. This is the latest in a series of sales from the Amazon founder and the level of supply hitting the market has clearly impacted price, fuelling the current decline.

Added to this, there is a certain level of uncertainty in the outlook following Amazon’s bumper earnings call. The company has ballooned in size over the course of the pandemic with lockdowns and social restrictions fuelling a rise in online shopping. However, as vaccination progress continues to grow and reopening gets underway on a larger scale, many are judging that the company’s performance has peaked and will likely decline over the remainder of the year.

Ok, so, now we’ve walked through the fundamental backdrop, let’s take a look at the technical picture.

Technical Views

AMAZON

The test of 3551.23 saw heavy selling kick in with price breaking down below two key support levels. The market is currently fighting to get back above the 3303.66 level. If price can sustain above this level, a further move higher is still in view. Below there, however, and the focus turns to the 3181.15 level support next up.

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