Interactive Investor

Chart of the week: how to buy Amazon shares at a massive discount

24th May 2022 12:25

by John Burford from interactive investor

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With the shares down significantly from their record high and a stock split imminent, technical analyst John Burford explains his view of the retail colossus.

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Amazon is offered at a 45% discount – buy?

Along with every US tech share, (NASDAQ:AMZN) has been literally clobbered in recent weeks. From the all-time high at $3,750 set in July last year, it has lost 45% to the recent low at $2,050. And last year, this was supposed to be one of the 'never sell' shares along with others in the tech sector’s FAANG gang.

But its most recent slide was accompanied by dire news last week of weak US retail sales data. That data hammered such retail giants as the low-to medium discount retailer Target (NYSE:TGT). It suffered a huge air pocket last Wednesday when its shares gapped lower by a massive 25% on the release of its Q1 earnings and sales report.

Many are now calling for a recession later this year as the outlook for big spending by the US consumer appears to be off the table – in spades. Not only that but the list of economic negatives is long, from the cost-of-living squeeze to the food crisis to rising interest rates. Who would dare buy shares in this bearish environment?

Putting Amazon shares under the microscope

So let's take a look at Amazon. A case can certainly be made for buying given the 45% bargain-basement discount on offer, its still dominant position in e-commerce and the 3 June 10-for-1 stock split together with its growing cloud computing division. 

And in the wings, the company is working on several innovations, such as cashier-less retail stores (they are coming) and satellite broadband delivery, both of which could impact earnings down the road.

But near term, market sentiment is decidedly bearish and, with lagging sales growth, the company that was formerly hiring in droves is now looking to lay off workers in some regions.

Amazon chart (John Burford May 2022)

Past performance is not a guide to future performance.

Yes, the chart is not a pretty sight, but the decline looks like a three down (corrective) and is trading around a Fibonacci 76% retrace from the all-time high. It is now ploughing into major chart support from the late 2019–early 2020 period.

With the huge discounts available on the big name US tech shares, insiders (corporate executives) now appear to be buying back the shares they sold late last year near the highs. Should you join them?

The upcoming stock split could provide a normal boost which could set a near-term low. However, if the general market fails to stop the slide, the shares could move somewhat lower before stabilising. But on a long-term view, Amazon at a 45% discount is very attractive.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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