Carter Worth, Chief Market Technician at CNBC, appeared on Options Action this past Monday as part of a segment discussing the big tech earnings for the week of January 28th. These names included Apple, Amazon, Facebook, and Microsoft. Of these four names, Carter went to the big screen to give his technical take on Amazon (AMZN).
He starts by stating that the names mentioned are key institutional stocks and are helpful in determining the overall stock market outlook. “I will make the bet that it is not as good as consensus believes,” says Mr. Worth. Why? Amazon, which has been in a clear uptrend since September 2017 has broke that trend. The trend line is of significance as it was tested over 6 times into October 2018. “This security, which has been in a perfect uptrend, fell 37% after breaking trend. It has since bounced right into the 50% Fibonacci retracement level.” This 50% level corresponds with ~$1,689 per share in Amazon.
When a stock breaks its uptrend, it is important to note that it does not mean it is now a short target, rather it can move sideways and into a period of consolidation. Depending on the stock, it’s possible to renew the uptrend or began a downtrend. Carter continues “what’s important is Amazon is basically stuck and stalling at this 50% retracement level. You can see a tight consolidation and typically that happens before a big bet.“
One thing he points out, besides the break in the uptrend, is the potential head-and-shoulders appearing in Amazon. A head-and-shoulders pattern can predict a bullish-to-bearish trend reversal. Carter notes that this is a bearish interpretation on Amazon.
He finishes by stating that “my hunch is that this rebound has come a long way and the stock is a better sale than buy.” Amazon is set to report 4th quarter earnings on the 31st after-market-close with estimated E.P.S. of $5.65 and Revenue of $71.61B. Amazon makes up nearly 3% of the S&P 500 and 10% of the NASDAQ 100 so all investors will want to be aware of the reaction and where the stock opens on Friday morning. If you would like to view the video in full, you can do so here.