To The Moon

$Amazon.com(AMZN)$

For years Amazon seemed invincible, an e-commerce giant that made other companies shiver when it muscled into their markets. It helped Amazon stock soar into four-digit territory. And Amazon earnings reports often delighted investors.

But the company proved vulnerable when it uncharacteristically fell far short of Wall Street's forecast when it reported an unexpected first-quarter loss. Amazon stock plunged 14% in reaction, its largest one-day drop since July 2006.

Investors wondered whether the disastrous earnings report was an isolated fluke or a sign of things to come. Some on Wall Street contended the e-commerce titan just needs a few tweaks. But others say it's time for hard-charging Amazon to pause and rethink its strategy.

Amazon showed its slowest quarterly growth rate since 2001 when first-quarter results were reported. Revenue rose 7% to $116.4 billion, vs. 44% growth in the year-ago period.

The number of products that Amazon sold was flat from a year ago, and its costs to sell those items increased. Its operating income was a disappointing $3.7 billion, while Amazon stock analysts were projecting $5.3 billion. It blamed the pandemic, inflation and Russia's invasion of Ukraine for its weak performance, among other things.

Wall Street Satisfied With Second Quarter Results

However, Amazon stock jumped after it reported second-quarter earnings on July 28 that, while missing earnings estimates, beat on revenue across the board. Amazon stock jumped 10.4% in reaction.

Revenue jumped 7% to $121.2 billion, beating estimates of $119 billion. It lost 20 cents a share vs. estimates of a 12-cent profit. However, its Amazon Web Services unit topped expectations, as did Amazon's third-quarter outlook

"Despite inflationary pressures, a tight labor environment, and suboptimal fixed-cost leverage, Amazon delivered strong second quarter results that benefited from elevated levels of consumer demand and better optimization of its fulfillment network," Wedbush analyst Michael Pachter wrote in a note to clients.

Longer-term, he wrote, Amazon should benefit from steady margin expansion driven by the rapid growth of its cloud and advertisement businesses.

For a time during the pandemic, things rolled for Amazon stock. As Americans hibernated, the company provided critical services throughout the pandemic, with its vaunted home delivery system. Revenue surged as Amazon could do things nobody else could

But restrictions lifted and consumers ventured outside again. The pandemic's aftereffects helped move Amazon into an uncomfortable position. Globally, labor shortages disrupted the flow of goods through supply chains. Trucking capacity became scarcer and more expensive. The company was also hurt by several other headwinds. This included higher costs driven by labor supply shortages and inflationary pressures.

"Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic," Amazon Chief Executive Andrew Jassy said in written remarks with the earnings release.

Positioned For Success As Covid Subsides

Amazon stock bulls, however, think the company is positioning itself for even greater success as the world emerges from the effects of Covid-19.

"In our view, Amazon is uniquely positioned to exit this crisis as one of the biggest beneficiaries of accelerated digital transformation," Monness Crespi Hardt analyst Brian White said in a recent note to clients.

In a sign of things returning to normal at Amazon, its annual sales extravaganza known as Amazon Prime Day came back to its regularly scheduled dates, following a number of earlier schedule changes previously caused by the coronavirus pandemic. Amazon is reportedly adding another Prime Day event in the fall.

Another significant event during the second quarter came when Amazon announced it will acquire One Medical for about $3.9 billion, including debt. It's the e-commerce company's largest expansion into health care services. One Medical is a technology-centric primary health care business.

Amazon's acquisition of One Medical is its largest push yet into the health care business, which began with its acquisition of PillPack four years ago for a reported $1 billion. That gave Amazon the ability to ship prescription drugs around the country. In the past few years Amazon has expanded into the health care market.

Technical Analysis Of Amazon Stock

In the stock market, timing is critical. So when you're looking for stocks to buy or sell, it's important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.

The IBD Stock Checkup tool shows that Amazon stock has a weak IBD Composite Rating of 42 out of 99. When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, try to focus on those with a Composite Rating of 90 or higher.

Its Relative Strength Rating is 45 out of 99. It means that Amazon stock has unperformed 54% of all stocks over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.

Amazon stock is not a buy at this time.

A concern for now is Amazon is trading below its 200-day moving average. It represents the average price over the past 200 days. The moving average can give traders a sense regarding whether the trend is up or down, while also identifying potential support or resistance areas.

Amazon has hit resistance at that line, just like it did in March and early April, then pulled back. If Amazon moves above the line, great. If not, it would not be a surprise if shares decline or go flat for a while.

Another concern is Amazon has fallen close to its 50 day moving average, while its relative strength line is moving sideways. Both are negative signals.

@TigerStars

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