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I’m sure you’ve seen the news…
President Trump VS Amazon.com (AMZN).
And now AMZN is in limbo – and waiting for stipulations to be placed by the U.S. government.
This coupled with the absurd volatility in the US equity markets has not bode well for AMZN through the month of March – including a 6% drop in their share price.
But regardless of the political rhetoric surrounding the online retail giant – my Money Calendar is flashing some interesting numbers about the future of this stock and even suggesting a potential profit opportunity…
A Battle for The Ages: President Trump Vs Amazon
This isn’t the first time President Trump has voiced his distaste for Amazon and their business practices. Long before he took to the oval office, President Trump was sharing his opinion on the e-commerce giant.
But most recently, the President took to Twitter to express his concerns.
The President argued the AMZN has an unfair advantage over most traditional retailers in the way the business handles the sales tax on purchases.
Last year, AMZN started collecting a sales tax on products it sells directly to consumers in states that levy them. But, the further concern for some of the competition is the unfair advantage they see AMZN has regarding the policy for third-party vendors.
And while the President is calling for a price hike from the United States Postal Service – the likely outcome is that there won’t be much of an increase to Amazon’s shipping rates, at least not right away – and it won’t come from Congress.
The US Postal Service sets the rates for AMZN – and the company is one of their biggest customers. The looming fear of Amazon creating their own internal delivery system, or using a combination of smaller delivery services sits in the back of their mind.
And while the President’s efforts may have been to throw AMZN into hot water – from an investor standpoint the president may have created the perfect buying opportunity.
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So What Does this Mean for Investors?
From my point of view, it’s as if investors in AMZN wanted to lighten their load stock load until they have a better sense of what’s happening surrounding the stock.
Right now, it seems a lot is up in the air for the retail giant – but in reality, it boils down to three main reasons to why investors are taking profits and pulling back on holdings…
- The new tax policy on delivered goods
- The President’s announcement that the United States Postal Office should negotiate higher prices.
- Unsubstantiated claims that Amazon is costing America money and jobs.
But it doesn’t appear that this selling was done in enough of a wide-spread panic mode because the stock simply pulled back to its previous price point.
As you can see below, this reversal that happened on Wednesday could become a double-bottom price support at $1350.
Another technical view of the stock at $1350 is at a key
Fibonacci retracement level, the 38.2% level, which many technical traders, stock or options, like to use as support. Fibonacci retracements are ratios that are used to spot potential pullbacks or corrections. This can be used to predict when and for how long a pullback will happen in the markets.
We’ve talked about this strategy a while back – click here to learn more.
What the stock needs to see now is what’s called “follow-through days.” In this case, AMZN has been in a downdraft and Wednesday’s bullish reversal day happened, but we need to see another day (or more) where the stock keeps moving higher. And if it can do so on increasing volume, all the better.
Here’s How to Grab a Possible Profit on This Retail Giant
Now, AMZN is slated for May 3, AMC – with that said there’s a couple ways you could play this…
If you’re an aggressive options trader, who is going to consider a long call option play, a good idea would be to only consider this if they plan on closing the position prior to the earnings report.
I could see a technical price move to refill the gap down at $1500 all the while monitoring this $1350 price level as support — that if broken to the downside would be a stop point to strongly consider.
But regardless, I would close any position — no matter the profit or loss — prior to the earnings announcement.
Now, we all know Amazon is expensive regardless of how you buy…
But one way to hedge the cost of a straight long call is to create a “call debit spread” or as we call it here at Power Profit Trades a bullish (green) loophole trade.
The last options strategy that you could consider is the “straddle.” The key is to wait closer to earnings before executing this strategy. You’ll want to keep a close eye on the stock’s current price and the price of the put to gauge where the stock could go next.
Specifically, what you want to see is the stock moving higher or lower more than the price of the options so that the real (also called “intrinsic value”) of the call or put exceeds the price you paid for the straddle. That way, you get to pocket the profits.
And that’s it.
I will be keeping a close eye on this company as they get closer to earnings – so, for now, ignore the talking heads and stick to your strategies to decide if AMZN is the right move for you.
Tom Gentile
America’s #1 Pattern Trader
