Amazon.com: The Long and Short of It

Christopher Wallace - February 27, 2013
   

Amazon.com (NASDAQ:AMZN) has been one the true leaders the stock market recovery from the recession that began in the Spring of 2009 having risen over six times from bottom to top. The rise has attracted much criticism from short sellers who complain that rising revenue has not been able to be turned into a rising bottom line which has pushed its valuation into the stratosphere. The momentum driven longs have cheered CEO Jeff Bezos as a wunderkind. Is it too late to jump on the bus and go long? Is it too early to go short? In reviewing the technical case of AMZN, I have found the answer will depend on your investment horizon. To begin, let's look at the long term, using the three year chart and weekly bars:

From my analysis I have placed four indicators on the AMZN price chart that I think have the most to tell about the technical picture: Moving Average Convergence Divergence (more commonly referred to by its initials MACD), Relative Strength Index (RSI), On-Balance Volume (OBV) and its long term trend-line.

The key indicator is the rising long term support trend-line. This has held impressively in place since July 2010 and puts the bulls firmly in control of the action, longer term. Long term buy-and-hold investors for the most part will be sitting on handsome profits and can sit with confidence as long as the price remains above that line. RSI has moved back to neutral from overbought as the stock has pulled back from its high. Caution flags are being waived by both MACD and OBV. Weekly MACD has made a bearish crossover, signaling a near term downtrend. Most worrisome is OBV which has flat-lined through the impressive rally of the last year. The January high in the stock was not matched by a new high in OBV; in fact in January OBV registered lower than during the price peak of the previous October. This non-confirmation is not seen as supportive of the up-trend.

Shorter term traders, and I suspect that is the greater audience here at Invested Central, will be more interested in AMZN from the short side.

Reviewing the same indicators but using a six-month time frame and daily bars produces a short-term technically bearish picture. Last week's rally tried to turn MACD bullish but failed to crossover the trend-line and turned back down; a bearish development. RSI is back to neutral giving room on the downside before it becomes oversold. OBV shows that supportive volume did not come in on the up days and did not confirm the January high. Should OBV drop below its mid-November low, this would indicate a potential for price to drop below those lows and go sub $220. The short term support trend-line has been broken and no longer rules the price action. A test of the declining resistance trend-line would further confirm its dominance over the price action and indicate where AMZN is headed.

While long-term investors can remain long AMZN, short-term traders will want to be short. And that, technically, is the long and short of it!