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Asset Watch

Will the bears tear down Amazon’s rainforest?

 

Monday, May 30, 2022

It’s been an outright demolition for Amazon in 2022, with the e-commerce giant down by more than 39% year-to-date (YTD). Moreover, Bloomberg reported that Amazon plans to sublet at least 10 million square feet of warehouse space as pandemic-induced demand has waned.
Will the bears tear down Amazon’s rainforest?

This comes after CFO Brian Olsavsky said in Q1 that, “excess capacity,” has him focused on, “rightsizing our cost structure and driving out any cost inefficiencies.” In addition, he said that we have, “lowered our operation’s capital expenditures for 2022,” as overcapacity, “resulted in $2 billion of additional costs year-over-year (YoY) in Q1.”

Therefore, with the coronavirus pandemic abating, the warmer weather has shoppers spending less time online. And by the looks of Amazon’s stock, investors have noticed.

But is a profitable trading opportunity still present? In 2018 and 2019, resistance (which is now support) materialised near $2,051 and $2,036. And with Amazon closing the May 24 session at $2,082, the bulls’ last hope for salvation is officially here.

As such, if Amazon can hold $2,082, a second back-test of the breakdown below its rising support line (which is now resistance) implies upside to about $2,279. In contrast, a drawdown below $2,036 puts next-level support at $1,624. For context, the area coincides with the March 2018 highs, the February/March 2019 lows, and the March 2020 lows.

As a result, should you buy Amazon or short it?


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