AMZN: Amazon.com Stock Ready for a Breakdown?

A key support level has formed in the chart of Amazon.com (AMZN - Get Rating). If this level is broken, a breakdown is expected.

AMZN is a leading online retailer and one of the highest-grossing e-commerce aggregators. The company’s offerings also include Amazon Web Services’ cloud computing, storage, database, and advertising services.

The company has been gaining on more Prime subscriptions due to a coronavirus-led spike in online orders. In addition, AMZN is seeing strong adoption of AWS through expanding its AWS services portfolio, though the company is seeing increased cloud competition.

AMZN had $84.4 billion in cash as of the end of the year with a current ratio of 1.1. It also has a high return on equity of 22.8%. The company has a very strong history of growth with earnings growth averaging 102% over the past five years. Earnings are expected to rise 87% year over year for the current quarter.

All that growth has led to a high multiple as AMZN has a trailing P/E of 71.73 and a Price to Book of 15.9. While the stock has shown positive long-term momentum, its performance this year has so far been bearish. This has led to a Momentum Grade of C in our POWR Ratings.

Take a look at the 1-year chart of AMZN below with added notations:

Chart of AMZN provided by TradingView

AMZN has created a key level of support in the $2,885 (green) area over the past couple of months. The stock has made its way back down to that $,2885 area again, and a bounce followed.

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If this support were to break, lower prices will likely follow for AMZN. Therefore, a trader could enter a short position if the stock were to break below the support level.

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AMZN shares rose $60.05 (+2.03%) in premarket trading Tuesday. Year-to-date, AMZN has declined -7.43%, versus a 3.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...