Chart of the week: will Amazon’s results be blockbuster or bust?

by John Burford from interactive investor |

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All eyes are on the online shopping giant ahead of its Q1 earnings announcement this week.

It's no secret that Amazon (NASDAQ:AMZN) is having a great pandemic – and just how great will be outlined this week in its Q1 earnings results on 29 April. But since last August, when the all-time high of $3,580 (£2,574) was achieved, the shares have gone nowhere as investors have digested the massive gains since the depths of the coronavirus crash lows of March 2020. 

Back then, the shares traded at $1,625 and have improved by a mighty 120%. That's the kind of performance recorded by tech start-ups, but Amazon hardly qualifies as one – its market cap is now $1.7 trillion (or about 60% of UK GDP).

So the question is: has this stunning year-long re-rating discounted any possible bullish future scenario that has taken its price-to-earnings (P/E) ratio to a hefty 80? Or are we near 'Peak Amazon', with governments (especially in the European Union) increasingly worried about the global dominance of US big tech firms – and seeming to be gearing up to do something about it – and the thorny issue of how much tax it pays?

Here is the impressive bull run from the early days:

Past performance is not a guide to future performance.

I have labelled the Elliott waves such that we should have one more wave up into new highs. Here is a close-up of waves three and four on the weekly:

Past performance is not a guide to future performance.

In fact, wave four appears to be in a classic wedge/triangle, with wave five about to surge up into new high ground. If that occurs, when wave five terminates the market will begin a lengthy decline to at least the $3,000 region, and likely much lower.

But note the effect of the crash last year – it put hardly a blip on the market's progress! In fact, it kicked off the 120% uptick as investors realised that, in lockdowns, internet commerce would flourish at the expense of high street retail.

So my best guess is that after some possible volatility surrounding Thursday's data release, the shares should continue northwards. If so then that would be the end of the decades-long wave pattern and lead to a multi-month decline at least.

Of course, I have no firm idea what adverse background economic and financial conditions would prevail under this scenario. One would be a sharp spike up in interest rates that I have been mentioning in these pages. Hmm.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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