Calling the top to Amazon.com–Particularly based on valuation– has been the quintessential sucker’s bet for many, many years. After all, CEO Jeff Bezos is a genius and the firm has been at the epicenter of a secular shift. Nonetheless, stock market history dictates that at some point all great runs come to an end, particularly high growth issues in a seemingly perpetual uptrend.
We still have quite a ways to go before the end of the first quarter in 2013. But I noticed that Amazon gave back all of its recent earning’s run-up. Furthermore, on the quarterly chart below we can see a textbook “shooting star” candle forming after a steep prior uptrend. The shooing star looks just like an inverted hammer, except the former is often a bearish omen after an uptrend while the latter a bullish one after a downtrend. Psychologically, the shooting star indicates that after an established, obvious uptrend buyers come in to intially gap price up much higher. However, the move quickly fades and new longs are essentially trapped.
Like all individual candles which presage a bearish reversal, downside confirmation is required sooner than later. Again, this is a very long-term timeframe (though the monthly is also printing a shooting star), and we have a long ways to go to see if Amazon even closes the month and quarter at these levels or lower.
Nonetheless, Amazon has been camping out at the top of the mountain for a very long time. Just when it seems like a stock is truly untouchable as far as trading it short, it often becomes vulnerable.
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closing older position here(from 12/2010)
Sell * Shares of AMZN
Filled at $260.17
02/04/2013, 12:47:14 PM ET
You’re right, people have been calling a top for Amazon for years for exactly the reason you cite – stretched valuations; while on the other side, the “retail is going away” saying is even louder. The only things I see in Amazon’s favor is that Bezos is spending a ton of money building an impregnable moat, and many of their customers don’t actually comparison shop. But I just don’t believe Walmart or Target will go away in my lifetime.
Walmart & Target won’t completely go away– just mostly. I live in a rural area & I buy tons of stuff on AMZN rather than driving to a Walmart or Target. Lots of times the prices are pretty good. And lots of other folks are doing this too. So I would definitely wait for a bearish confirmation before shorting this monster.
I agree, Frog