Will Amazon Break Out?

With shares of Amazon (NASDAQ:AMZN) trading around $261, is AMZN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Amazon serves consumers through its retail websites and focus on selection, price, and convenience. The company also manufactures and sells Kindle devices. It offers programs that enable sellers to sell their products on its websites and their own branded websites as well as fulfill orders through Amazon, and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Amazon operates in two segments: North America and International. Through its segments, Amazon is able to help consumers and businesses transact as efficiently as possible and will continue to do so for years to come.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals on the Stock Chart are Mixed

Amazon stock has been a big winner for investors over the last several years. The stock has seen a consistent trend of higher highs and higher lows and is currently trading near all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Amazon is trading around its key averages which signal neutral price action in the near-term.

AMZN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Amazon options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Amazon Options

41.42%

90%

87%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Amazon’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Amazon look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-42.11%

-528.57%

-97.56%

-36.36%

Revenue Growth (Y-O-Y)

22.03%

26.93%

29.43%

33.71%

Earnings Reaction

4.76%

6.87%

7.86%

15.74%

Amazon has seen increasing revenue figures over the last four quarters. From these figures, the markets have been very excited about Amazon’s recent earnings announcements.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

P = Excellent Relative Performance Versus Peers and Sector

How has Amazon stock done relative to its peers, eBay (NASDAQ:EBAY), Apple (NASDAQ:AAPL), Overstock (NASDAQ:OSTK), and sector?

Amazon

eBay

Apple

Overstock

Sector

Year-to-Date Return

4.36%

1.18%

-25.69%

31.17%

5.85%

Amazon has been a relative performance leader, year-to-date.

Conclusion

Amazon provides efficient and convenient retail platforms that connect consumers and businesses across the globe. The stock has performed very well for investors over the last several years as revenues have been consistently growing. Currently, the stock has been consolidating just below all-time high prices. Relative to its peers and sector, Amazon has been one of the performance leaders, year-to-date. WAIT AND SEE what Amazon does during this coming earnings announcement.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   , ,  

More from The Cheat Sheet