Has AMZN Finally Topped?

In January 2015 I posted an Insta-blog on Seeking Alpha calling for a low in the 280 region prior to the January earnings report. In that post I called for a resumption of the long term rally looking for a target well over 450. AMZN did not disappoint, and in our regular StockWaves updates we tracked the progress and continued to revise the extension targets and raise the support levels. While the potential for further extension in this Primary degree 3rd wave is still possible, the failure to hold higher levels of support as well as the failure to utilize the most recent ER for a potential extension setup makes it more likely that the early stages of the Primary Wave 4 are underway.

Ultimately, this should take AMZN all the way back down to the region of the prior subwave (4) of Intermediate degree and/or back to the 100% Fibonacci extension of the Primary 3 (after we hit the 138.2%). Thus I am looking for support in the 350-284 region and will be able to further refine this as more of the correction unfolds. (Note from Tim: why the black color schemes, people? Why, why, why???????)

In an attempt to merge Fundamental Analysis with Elliott Wave, the latter of which relies on charting patterns of investor sentiment manifested in price, one metric that I began looking at was AMZN’s Price to Sales ratio. I introduced this idea in my very first article on AMZN in August 2013. In that article I laid out a “normal range” and “extremes” for AMZN’s P/S, and used that to corroborate my then price target of 350+, and said that it would not register “extreme” until 452. In January of 2014, AMZN hit its then high just over 410. At the time P/S was 2.63.

After a large corrective consolidation in the normal price chart, the P/S had also completed an ABC correction back under the “normal range” bottoming in the 1.60s. I pointed out in my January 2015 article that if P/S just marginally exceeded the 2014 top of 2.63, it would yield a price target of 495+ without any revenue growth. One of the things that AMZN has been consistent with is revenue growth. Since this next move was to be a top of a larger degree Primary 3rd, we should get closer to that really extreme level of 3.2. Between November and December 2015 AMZN’s P/S topped at 3.18. This correction should again take it back under the “normal range” or ideally to the “extreme” low region closer to 1.20. If Revenue/share stays relatively constant at 229 then a P/S of 1.25 would take price back to $286.25. The lower range of support for the Primary degree 4 predicted by Elliott Wave.

The reaction to the recent earnings “miss” is further evidence of a shift in sentiment. In the past (2009-2013) many AMZN bears got very angry about the “AMZN pass,” a virtual “Get out of Jail Free Card” allowing AMZN to continue its meteoric rise despite frequently posting “bad” numbers. That was not the case though in 2014. While AMZN was in the previous degree (4)th wave, several of the larger drops came from bad investor reception to earnings, and StockWaves alerted subscribers to the setups for those drops in its regular “ER” updates. It looks like most of 2016 will be the same. The next AMZN earnings report is due in mid April; by then AMZN should have completed the “A” wave and be completing a bounce in “B” setting up for a large drop following the earnings. StockWaves will be following the progress of this potential setup as well as tracking the entire correction.

I think Bezos has tremendous vision for the company. I have even joked about him taking over the World. Many AMZN skeptics have had to eat their words as the company has pushed into new areas and turned them into successes. But some of those innovations were not well received at the time by investors (think Fire Phone). AMZN’s recent announcement to open hundreds of physical bookstores is likely to be one of those.

I am still very long-term bullish on AMZN, but I would rather become a trader of AMZN again in the intermediate term and INVEST again when Amazon Prime has it “on sale”.