Wednesday

Amazon: Payday

Post a Comment October 26, 2011 – 1:06 am |   | Permalink |  Print This Post |

Amazon extended after hours trading is down 12% as we type this, about $198. We shorted 500 Amazon shares on 12 October 2011 at $239 ($119,500 holding) - and will continue to hold until our initial target of $180-190 is reached. We will look at the technicals to decide on the exit. Looking into the latest quarterly report, it came as a surprised even to us ultra-bears! We have long discussed Amazon’s overvaluation (since $140 - can never pick the top!). For new readers, check out our Comparison of Amazon versus Google versus Apple - Amazon is by far the most overvalued “blue chip” stock out there.

Sidenote: Just listen to what Cramer is bullish on (Cramer was bullish on Netflix in March 2011) to get contrarion ideas. In Cramers 20 October stock pick he had AMAZON on a BUY at $233.

Amazon (AMZN): Cramer called AMZN “a great destroyer,” saying that it “destroys all” and just “keeps going higher.” He recommends buy. AMZN closed Thursday at $233.61 a share. Ken Fisher agrees. His Fisher Asset Management has more than $516 million in AMZN after increasing its position by 3% in the second quarter.

It takes a bullish presenter to make a good TV show as stock rallies take time to get to the top, but the fall is often acute. Hence a bullish Cramer with 52 weekly shows may be right 51 times (attracting more viewers in the process), but on the 1 show where Stock X drops 70%, he will move on to the next stock rallying and pay little attention to disastrous picks. A bearish presenter’s TV show on the other hand will not sell as he would be “wrong” 51 times even though he gets  it right on the final show! So the only reason I pay any attention to Cramer is to find out what he is most bullish on.

Looking at Amazon’s latest numbers, margins remain pathetic. Fulfilment, marketing costs are up >60% whilst revenue is growing at 44% (impressive revenue growth). Bezos’ strategy could eventually pay off, but at a PE of 110 recently, it is a time bomb waiting to explode. We will analyse the latest report further and post it here later.

Gameplan:

1. If miraculously it does a reversal with good news from Europe/Germany tonight and stays at $220 ish, we will short more.
2. If it dives, we aim to unload a third at $180-190. Bear in mind from our previous lessons, most of the move occurs in the last few days of it - so be patient!

We posted the chart below saying the RSI spiked up to kiss the downtrend line - that marked the top!

Amazon Roadmap