David Becker: Amazon.com Inc (NASDAQ:AMZN) dropped sharply on Friday and closed down nearly 10% after reporting earnings Thursday that disappointed investors. Guidance was uninspiring, which led to a quick liquidation. Amazon.com has now been in business for 20-years, and much to the chagrin of investors, still does not focus on profits.
Amazon delivered weaker than expected results, and guidance was a bit disappointing. Amazon earned $0.23 on revenue of $19.74 billion while analysts were looking for $0.24 and sales of $19.42 billion. Revenue was up 22.8% year over year, though the company barely turned a profit.
While EPS was up from $0.18 a year ago, operating income was actually lower by 19% to $146 million as operating expenses were also up 23%. The company is aggressively investing in content for Amazon Prime, as seen by its deal with HBO, and the launch of Fire TV, but these endeavors will pressure margins in coming quarters.
Daily Amazon Stock Chart
Momentum on Amazon stock has turned negative as the MACD (moving average convergence divergence) index is poised to generate a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.
The 50-day moving average is quickly approaching the 200-day moving average. When the 50-day moving average crosses below the 200-day moving average (known as the “death cross”) a long term down trend is considered in place.
Break Away Gaps
Amazon stock broke down, gapping below trend line support near $308, on strong volume. A breakaway gap occurs when the price of a stock is breaking down out of a consolidation trading range or congestion area. A congestion area is just a price range in which the market has traded for some period.