Amazon Stock Appears Lost In The Forest

For the first time in ages, Amazon.com AMZN appears to be destined for a bigger fall. It truly looks like the stock is lost with slow selling by institutions. Recently, Amazon reported earnings. At first, the stock fell lower but then quickly recovered to surge, making new all time highs. The earnings were again horrid, putting the P/E ratio for AMZN well north of 1000. In the past, the stock has always fought back to move sharply higher. This time looks different.

First, the pop after earnings was pure short covering. Tons of traders shorted the stock into earnings only to have it fall a minor amount on the report. As they covered, the stock price rose. Remember, covering a short is buying. As the stock popped, more shorts covered. By the end of the day, all the shorts that held just for earnings were out. Now the stock could resume its normal course based on the earnings announcement. That normal course was down.

Since that one day pop on earnings, Amazon has done nothing but go lower. Even in an up market, the stock heads lower. At this point, all bounces can be shorted in my opinion. I think the company is fantastic. I buy tons from Amazon.com. However, valuation makes no sense here. The stock will head to $220.00 by the end of 2013.

Gareth Soloway

InTheMoneyStocks.com