Trade Idea: Amazon could be an option (if it falls to $65)

Amazon.com (NASDAQ: ) fell sharply after reporting results last Thursday. Although third-quarter revenue and earnings were in line with expectations, weak sales of high-margin cloud services disappointed investors. Amazon Web Services sales were $20.5 billion, lower than the estimate of $21.1 billion.

In other words, the cloud computing unit’s growth fell to 27.5%, well below the 32% that analysts had forecast, its slowest growth since the company began reporting corporate financials. In addition, Amazon provided a weak forecast, warning that fourth-quarter annual growth will fall 6% to 8% and revenue will be between $140 billion and $148 billion, down from an expected $155.15 billion.

Amazon’s problems are part of the challenge for big tech companies after the economy entered a tech recession and is headed for a full recession that even politicians won’t be able to deny.

So is Amazon a buy after losing 48.25% since the July 2021 high? Fundamental analysts think so. TipRanks gives an average price target based on 33 analysts of $141.31, reflecting a 36.65% gain from the current price of $103.41. But fundamental analysts’ targets are within a 12-month time frame. They claim not to know when their goals will be achieved. So even if they’re right, at some point in the next 12 months, they’re not necessarily saying the stock won’t fall first.

Now let’s look at the technical approach.

Price completed another continuation type H&S. The model’s high of $40 implies a target of $65. If all the invested interest causes a chain reaction for another 38.5% drop, the stock will have crossed another uptrend line from the January 2015 low.

The next significant support could be the December 2018 low of $65. It is correct. The H&S continuation pattern coincides with the December 2018 low, providing technical support for a fresh uptrend. However, if the accumulation fails, the next support will be the uptrend line from the 2008 low, currently at the $30 level.

Trading strategies

  • Conservative traders should wait for price to retest the neckline of the H&S continuation pattern and demonstrate continued resistance.
  • Moderate traders should wait for a move back for a closer entry if this is not confirmed.
  • Aggressive traders can sell short at will, depending on their strategy.

Examples of short trades on Amazon stock:

Aggressive

  • Entrance fee: DKK 103
  • Stop loss: $108
  • Risk: $5
  • Target: $68
  • Reward: $35
  • Risk-reward ratio: 1:7

Moderate

  • Entrance fee: DKK 108
  • Stop loss: $110
  • Risk: $2
  • Target: $98
  • Reward: $10
  • Risk-reward ratio: 1:5

Conservative

  • Entry: $105 (after $108 retest)
  • Stop loss: $110
  • Risk: $5
  • Target: $90
  • Reward: $15
  • Risk-reward ratio: 1:3

Warning: The author has no position in the instruments mentioned in this article.

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