AMZN and S&P500 correlation is very high. This chart makes it possible to assess Amazon's out-performance.
One should be careful interpreting TA patterns here (rising wedge) too literally, since few traders are watching this. That being said, I find it exceedingly unlikely that Amazon will break up from the rising wedge.
I believe there are three factors fueling Amazon's performance:
1: Successful business operation and expansion
AMZN's results are very good. However, this is to be expected at a 190 P/E, and by itself shouldn't be more than just enough to keep up with the index.
2: Increased growth potential, including:
3: Investors increasingly believing in #2, FOMO
This is great for the stock price if you're already invested, but it's mostly unsustainable growth.
I have been invested for a while, and I'm in it for the long term because I believe in #2. That being said, I believe #3 is reaching a peak and is due for a correction. The support in the chart held despite Amazon meeting resistance at $1000 the past few days.
As a result I will be expecting continued out-performance for another week or so before Amazon can no longer keep up the out-performance, eventually leading to a correction caused by investors in #3 changing their minds. Note that #1 or #2 won't go away overnight, and therefore the correction won't be too bad.
One should be careful interpreting TA patterns here (rising wedge) too literally, since few traders are watching this. That being said, I find it exceedingly unlikely that Amazon will break up from the rising wedge.
I believe there are three factors fueling Amazon's performance:
1: Successful business operation and expansion
AMZN's results are very good. However, this is to be expected at a 190 P/E, and by itself shouldn't be more than just enough to keep up with the index.
2: Increased growth potential, including:
- The opportunities for AWS given the explosive growth in cloud computing.
- The growing chances of Amazon not only dominating online retail, but all kinds of retail, which makes up 2/3 of US GDP.
- The potential and increased likelihood of similar growth in the international market.
3: Investors increasingly believing in #2, FOMO
This is great for the stock price if you're already invested, but it's mostly unsustainable growth.
I have been invested for a while, and I'm in it for the long term because I believe in #2. That being said, I believe #3 is reaching a peak and is due for a correction. The support in the chart held despite Amazon meeting resistance at $1000 the past few days.
As a result I will be expecting continued out-performance for another week or so before Amazon can no longer keep up the out-performance, eventually leading to a correction caused by investors in #3 changing their minds. Note that #1 or #2 won't go away overnight, and therefore the correction won't be too bad.
Comment:
This scenario played out exactly as expected, and I think we will see a continuation going forward, perhaps with a somewhat reduced momentum. This should be a decent entry for those looking to get in a long term position.