Astute market commentator and investor Jeff Macke tweeted the following about Amazon’s (AMZN) price action in the two trading days following last Thursday evening’s Q1 earnings report:
— Jeff Macke (@JeffMacke) May 1, 2017
Jeff is facetiously referring to the fact that AMZN opened Friday morning at new all-time high (up a bit more than 3%) but spent the rest of the day selling off with the market, closing up 1% on the day but at the lows of the session (but still a new all-time high). A day like that can look like buyers’ exhaustion, leaving you to wonder who is the incremental buyer in a stock that has gained 100% (or $225 billion in market capitalization) from its February 2016 lows?
During AMZN’s fairly epic run of the last few years, there are not too many examples of post-earnings gaps to new highs that didn’t continue. In July of 2015, following the company’s Q2 results, the stock did open on the highs and close on the lows, but that was from a 20% opening gap, to close up only 10%. The stock did eventually fill in the entire earnings gap, but might have been solely the result of the late August flash-crash.
So to button up this little discussion. There was no exhaustion gap, or island top/reversal, the stock took a breather for a few hours. Is there an impending sentiment top coming? Maybe. Wall Street analyst are nearly euphoric on the stock with 40 Buy ratings, only 8 Holds and NO Sells, with an average 12-month price target of $1092, some 15% higher from yesterday’s close.
On Thursday in our quarterly preview I had the following to say about AMZN and a big round number:
clearly there is no overhead resistance. But the stock’s 10% gains since March 27th, very near all-time highs might discount a bit of good news. But to be clear, the stock has not rallied more than $300 points in the last year to $916 not for investors, and financial media to get to do their $1000 dance. I’m not saying it happens tomorrow, but I suspect we see that print in 2017.
Shorts have been decimated, everyone loves the company and the stock, and frankly aside from valuation and impending competition for AWS I don’t even know what the fundamental bear case is.
Some who watch me on CNBC or read me on Risk Reversal would say that I have a hefty dose of skepticism on stocks like Amazon. Let me quickly tell you where it came from. I started in the business as a long short equity trader at a hedge fund in 1997. I was young and dumb and thought making money in the stock market was easy. The protracted bear market that ensued in 2000 to its lows in early 2003 made it clear to everyone involved that when a risk asset or a market for that matter overshoots to the upside, it can do so to the downside. We saw that again during the financial crisis. Stocks like AMZN are not immune to this. The multi-hundred billion question though, will be from where and when? It will not be so easy that someone rings the bell at $1000, or $500 billion in market cap, and frankly, the scary thing for investors is that it’s not just AMZN, but AAPL, GOOGL and FB, nearly $2.5 trillion in market cap face similar sentiment dynamics. You could have said this 3 months ago, or a year ago. Amazon is a great company, the best of its breed, and absolutely destroying the competition in multiple sectors. But it’s also a massive beneficiary of this protracted low volatility bull market, where investors remain buyers, without a care in the world, after the stock doubled in the past year. So the main point is not one of fear… or even near term caution, but more recognition that it is never different this time, whenever that time comes.