Chart of the Day – $AMZN – Best Not-for-Profit in the World

Here’s a preview of what I’ll be discussing on Talking Numbers today between 3:20 and 3:30 pm EST on CNBC:

AMZN is bucking the recent market uptrend, making a new 10 day low today after JPM downgraded the stock to Neutral from Overweight.  JPM’s downgrade was due to concerns that the company’s gross profit growth could decelerate in 2013.  Based on tougher yoy comps, the analyst expects AMZN’s third party sales to moderate this year.

As we’ve said before, AMZN is the world’s favorite not-for-profit company.  It has not managed a substantial profit (more than 1% of current market cap) in its entire history as a company.  It has made incredible strides as a service-provider, no doubt.  But as an investment, it’s always “the next 5 years” growth story, never profits in the here and now.

So whatever the purported reasoning for the downgrade, AMZN is a stock driven much more by sentiment and psychology than earnings beats or misses.  Along those lines, the technicals don’t paint a rosy picture for the stock’s current prospects.

This is a 1 year daily chart of AMZN:

1 year daily chart of AMZN, Courtesy of Bloomberg

1 year daily chart of AMZN, Courtesy of Bloomberg

AMZN made a new high in Sept 2012 around 264 (marked with a red line), at the same time that the SPX topped around 1475.  AMZN broke out to a new high in January, at almost the same time as the SPX index also broke the 1475 level.  Since then, the SPX has breached its breakout level of around 1475 to the upside and has not breached it on the recent retest (shown by the green oval below), demonstrating a clean breakout.  Here is the 1 year chart of the SPX:

SPX 1 year daily, Courtesy of Bloomberg

SPX 1 year daily, Courtesy of Bloomberg

In contrast, AMZN has breached the 264 breakout level to the downside on multiple occasions in the past 2 months, demonstrating a failed breakout (shown on the green oval in the AMZN chart above).  While AMZN is still in a long-term uptrend, its short-term prospects look much less favorable based on this relative weakness.  Investors are clearly rotating into other names in the market.

AMZN is still in a long-term uptrend, as shown by the 5 year weekly chart:

AMZN 5 year weekly chart, Courtesy of Bloomberg

AMZN 5 year weekly chart, Courtesy of Bloomberg

But trendline support is a ways away, closer to 225.  In the short term, the first level of support to watch is around 250.  If that breaks, the longer-term picture on AMZN might begin to have the look of a longer-term top having been put in place.