Amazon / S&P500 - Some upside after break of $1000

3 thg 6, 2017

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:

• 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.

23 thg 6, 2017

Ghi chú

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.