The stock market had another very nice rally today, but we just want to point out that Amazon (AMZN) actually finished the day in negative territory. In fact, all five of the big cap names that have accounted for large part of the rally off the March lows (MSFT, AMZN, AAPL, GOOGL and NFLX) all finished in negative territory today.
Given that these names have all out-performed by such a large amount over the past month or so, today’s action in not a concern yet. We’re going to have to see these names act poorly for more than just one day before we tell investors they should start taking some profits in these names. However, the action in AMZN today DID raise our concerns more than the others.
AMZN experienced an “outside-down day” today. If you’ll remember, that’s when a stock trades higher than its highs from the previous trading day…AND lower than it’s lows from the previous day….AND closes below its previous day’s low. This takes place a lot less often than you might think, so it’s something that always catches our eyes when it happens.
It’s a sign of exhaustion…especially when a stock has seen a significant rally over the near-term…and it tends to be followed by more downside movement in a stock (or an index for that matter). HOWEVER. this is not something that necessarily means that a major top has been put-in for AMZN. It merely means that investors should be careful about chasing it up at these levels. If it sees any more downside follow-through, that would signal that a full blown correction in the stock is highly likely (even if its long-term trend remains in tact).
As we alluded to above, one day does not make a trend, so we don’t want to send up a big warning flag on AMZN just yet…especially with its earnings coming out on Thursday. However, given that the stock has rallied a whopping 45% in just one month…and both its daily and weekly RSI charts have reached overbought levels…investors still might want to take a few chips off the table in this name. At the very least, they should be very cautious about adding to any positions up at these levels in AMZN.
If the stock DOES see more downside movement…and breaks below its mid-April lows of $2,328…we’re going to become much more aggressive with the cautious stance.
There is no question that AMZN is a great company, but that doesn’t mean it cannot see significant pull-backs from time to time. Of course, we all know that about any stock. We simply believe that is incredible rally in recent weeks is getting over-done…and the fact that its P/E has moved back above 100x doesn’t help either. Valuation levels are lousy time tools, but the other items we mentioned today are usually quite good.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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