Market Overview

Amazon Shares At Critical Technical Juncture

Amazon Shares At Critical Technical Juncture
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Amazon Surpasses Alphabet as Second-Most Valuable Company (GuruFocus), Inc. (NASDAQ: AMZN) bulls have been riding high since Amazon bottomed in January at $285 and change; a 30 percent rally in two months will do that. The big question, however, is whether Amazon shares have enough reserves in the tank to power through critical "correction resistance" into the end of March.

One thing is for sure -- it will be an interesting month for both the bulls and the bears in the Amazon arena.

What The Bulls See

• A price-to-sales ratio of only 2.01.
• A strong balance sheet, based on certain metrics: Total cash of $17.4 billion that exceeds total debt of $14.57 billion and a current ratio of 1.12.
• Positive levered free cash flow of $2.63 billion annually.
• Potential huge EPS growth if the company ever decides to quit investing all its cash flow in new projects and retain some of the earnings.

What The Bears See

• Expensive valuation metrics: A market capitalization of $176.5 billion that slightly exceeds the estimated enterprise value of $173.69 billion, a price-to-book ratio of 16.66 and a P/E ratio of over 150, which cannot be justified unless and until the company decides to turn revenues into profits.
• Flat to slightly negative profit margins.
• Total debt-to-equity ratio of 135.64 percent.

The Technical Take

Technicians note that Amazon shares are either in the next leg of a new bull phase or may have just topped out at the end of an "abc" upside correction on the monthly chart. The key level to watch at the end of March is $385.93, the 100 percent price projection line for what the bears are calling the "abc" upside correction. Any close above that level at the end of the month will confirm for the hopeful bulls, who until this past week have been fully in charge of the situation since the January low at $285.25.


At this point, Amazon may be a "wait and see" situation as the key resistance looms just above current levels at $385. If the March close is greater than the key resistance, there may be a massive amount of short-covering activity in the stock.

Stock chart: 
Stock chart

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