Saturday, October 24, 2009

Amazon Real Rally Or Short Squeeze?

Amazon Technical Chart:

Amazon third-quarter earnings surged 68% on strong sales, led by strong North American media sales and the Kindle, which the online retailer called its "No. 1 bestselling item."
The blowout results surprised Wall Street and sent shares surging to their highest level this decade.

Amazon reported earnings of $199 million, or 45 cents a share, above year-ago earnings of $118 million, or 27 cents a share, and the average analyst estimate of 33 cents a share.
Net sales climbed 28% to $5.45 billion, above the estimate on Thomson Reuters of $5.03 billion. Currency translation shaved only a point from growth. In July, Amazon projected sales of $4.75 billion to $5.25 billion.
Electronics and other general merchandise posted a 44% sales gain, while worldwide media rose 17%. It caused a huge rally on very high volume, it's too early to say if it was a short squeeze or real rally, but I can't convince my self big institutions just start buying AMZN after 11 months rally with a 69.5X P/E, it simply does not make sense. 27.69% rally in one day is a humongous short squeeze and nothing else.

I try to look at AMZN as contrarian prospective there is some need to be concern.

1) Extremely high P/E (TTM) 69.5x, no matter how good is their earning it is unjustifiable.

2) Expanding triangle (in pink) on monthly base which is bearish formation.

3) Third completion of fifth wave, as you see in the chart AMZN is getting close to complete the wave "V" (Elliot Wave Theory) , it should get completed around $120-130. If it does that would mark the end of rally for AMZN.

On the other hand it broke 113 resistance therefore bulls could argue that it is a big deal, I agree but until AMZN retest it we can't say for sure that AMZN is going to hold it or not. If AMZN breaks the upper side the triangle but it fails to hold and drops back to triangle it would be very ugly for bulls, but if AMZN pulls back to 113 then bulls push Amazon higher it would be a new opening for Amazon.

AMZN is over valued and I would not be a buyer at these level . Many big institutions are in this trade and they can easily shoot the stock higher, just look at the Friday volume 58,305,777 it was 13.50% of total out standing Amazon shares, obviously big guys were very active and many caught short who had to cover their shorts. I don't feel comfortable to swim with big sharks, but I would go short Amazon if I see some weakness in near future.