Amazon is up 19% in 2 months!! Why?

Stock Movement:-

Amazon is off to a great start this year as the stock has gained a record 28% in the first 3 months of 2024!

The stock of Amazon had tested its immediate support at $90.02 and rebounded from that level to climb upwards. While movement in the overall market was dull and the S&P 500 was moving sideways, Amazon’s stock was going up. Although the momentum was slow, the stock steadily climbed to its immediate resistance at $107.83, which it managed to breach by the end of April due to good results. Still, it couldn’t sustain it due to a slowdown in the company’s cloud business. May was initially slow as the 25 bps rate hike by the US Fed sent Wall Street tumbling. Investors began pulling money out of equities as Amazon was not safe from it. The stock lost over 3% in a day! However, investor sentiment normalized as buying resumed in the stock. 

The company’s net sales had jumped 9% to $127.4 billion in the first quarter while it reported a net income of $3.2 billion as opposed to a net loss of $3.8 billion last year. This gave investors a significant boost to buy the stock as it breached its immediate resistance at $107.83 and challenged its next resistance at $122.93 by the end of May, but failed to breach it. Amazon was investing to improve its revenues while simultaneously undertaking cost-cutting measures to improve profitability, something investors cheered. June helped the stock breach the resistance but momentum in the stock was fairly dull. Bulls couldn’t move as aggressively as they did in May as the stock remained close to its (now) support at $122.93 for June.

July brought a strong bullish move to the stock as the company saw record sales during its 2-day sale called ‘Prime Day’. Customers purchased 375 million items in a day, making it the biggest sales day in company history as investors cheered the gains. However, market sentiments soured in the second half of July as the US inflation data was hotter than expected. As a result, the US Fed hiked interest rate by another 25 bps to its highest in 22 years. This sent indices tumbling as institutions began pulling money out of the markets. Amazon fell alongside global markets, losing over 6% in less than a week. Although buyers swooped in after that, the stock traded sideways as neither side could effectively move the share.

However, August brought about an end to the deadlock when it announced its quarterly results. Amazon’s stock jumped a staggering 7% in a day as Bulls were impressed by its quarterly performance. Revenues jumped 11% to $134.4 billion while operating income more than doubled, sending the stock to its resistance at $143.08, but couldn’t sustain the level. The level proved to be too much for the stock as it declined to fill in the gap that was formed due to its gap-up. By the end of August, Bulls took over once again as they made their way to the resistance at $143.08 once again. The Bulls eventually managed to drive it up and over the resistance by mid-September, but couldn’t maintain that level.

US economic and inflation data was not in line with analysts’ estimates as investors, who were already suffering from the two-decadal highs, began selling their holdings, fearing that the Fed might raise interest rates further. On 21st September 2023, Amazon’s shares had a meltdown as they tanked over 4% when analysts revealed estimates of another rate hike! Amazon lost 13% from the sell-off as the S&P 500 tumbled over 2%. Amazon kept falling until it hit its support at $122.93. The share sustained that level as buyers began driving the stock back up. However, market sentiment turned sour in mid-October when Hamas launched a massive terrorist attack on Israel.

As Israel began counterattacking, global markets tumbled and Amazon was caught in the crossfire. While the stock was declining, Google’s latest results showed a decline in the growth of its cloud computing segment. This sparked fears of a slowdown in the cloud business, including Amazon’s AWS, as Amazon’s stock fell through its support at $122.93. However, Amazon’s quarterly earnings helped beat the selling pressure as the stock reclaimed the support level. The stock jumped over 6% as the company’s revenues beat estimates once again to grow 13% to $143 billion with a robust growth in its AWS business. This revitalized buyer interest as the stock kept growing. It grew to breach its resistance at $143.08 and kept growing until mid-November.

While the S&P 500 was surging, Amazon witnessed an odd time of consolidation as the stock was stuck with minimal movement for over a month! By the end of December, the stock jumped to challenge its resistance at $154.77 for the first time in almost 2 years! However, Bears wouldn’t allow the stock to gain any further as the stock ended 2023 below the level.

2024 began with a weakness in the US markets as tech stocks, including Amazon, were on the selling counter. Amazon tanked to its support at $143.08 but buyers maintained the level and the stock rebounded. Overall growth prospects looked positive and sales were showing robust growth, thus fuelling a bullish move. By the end of January 2024, the stock had breached its resistance at $154.77 but had taken support at that level. However, Amazon amazed its investors once again with its quarterly results. Its business growth surpassed expectations once again as the stock jumped almost 8% in a day to challenge its next resistance at $172.03. 

Although the share declined in mid-February due to Jeff Bezos offloading 24 million shares over 4 days, buyers were optimistic about the company’s performance as they sent it soaring. By the end of March and early April, the stock had grown over 10% to challenge its immediate resistance at $186.24.

Analysis:-

Technically, the stock is trading at its highest level in 2 years. An RSI of 66.55 indicates that the stock is not overbought, but is nearing the overbought zone at 70. Amazon was trading well above its 5,20,50,100,200-day averages as it touched its resistance at $186.24 for the first time since November 2021.

The chart above compares Amazon’s performance with its competitors since the beginning of 2023. While companies like eBay and Walmart gave robust 30+% returns to their investors, Amazon beat all its competitors, including Target and Alibaba, to give a return of over 50% in the period!!

Fundamentally, the company has shown significant growth in recent quarters. Net Sales grew 14% to $170 billion, operating income saw a massive five-fold growth while net income grew over 30x times in the latest quarter.

What’s the future outlook??

The company is positioned very well. The company’s revenues are growing steadily as its free cash flows have grown from -$11.6 billion to $36.8 billion in its latest quarter. Moreover, the company is also working towards improving profitability as it recently cut several hundred roles in its AWS division while withholding cash pay raises. Furthermore, Amazon is also working on expanding existing capabilities while investing in new growth opportunities. This includes the announcement of a $15 billion investment to expand its AWS cloud computing abilities and a $2.75 billion investment in AI startup Anthropic and using AI in its product offerings!

Finally, Amazon is a market leader in the US eCommerce space and is in second place globally behind Alibaba. The e-commerce market is growing every year and the market is expected to grow to $18.81 trillion by 2029! As a leading player, Amazon is set to benefit from such market growth.

Amazon’s stock has been in an uptrend throughout 2023, making it one of the best performing stocks. However, there is an issue. Amazon’s stock recently challenged its immediate support at $186.24, but Bulls could not sustain a move beyond it as the price declined. The resistance level is fairly strong since the level was denied thrice in 3 years. Moreover, the bullish momentum has slowed down in March, indicating that buyers are running out of steam. While markets remain cautious due to rising tensions in the Middle East and US economic data, the stock may witness consolidation within the range of its immediate resistance at $186.24 and its immediate support at $172.03, at least until the company’s latest earnings results are released by April end.

Thus, although Amazon’s stock may witness near-term consolidation due to poor market sentiments, it’s long-term prospects are bright.