The stock market is struggling to find its place this year. Investors remain wary of what’s to come for several reasons. The most serious of these is Ukraine’s geopolitical turmoil. The case is still fresh and extremely serious, so there are a lot of serious questions looming. Today we are going to look at how Amazon (NASDAQ:AMZN) stock market investors may face this situation.
AMZN stock may have seen trouble coming since the summer of 2020. Although it had plenty of opportunities to come out strong, it chose to linger inside a range. Action for about 18 months has been sideways and in a very wide range.
Normally this is good news because with such consolidation comes a solid base for breakouts. However, it is not a guarantee this time due to the current external potential headwinds.
Ultimately, it’s one of the strongest companies on the planet. The current external issues will subside and the stock will trade its own upside opportunity.
After a long run horizontally, it becomes important for a stock to hold the bottom edges. Otherwise, it risks becoming a bearish catalyst first and then air resistance. AMZN is close to that point, but it’s not too late to avoid the downside.
AMZN Stock has work to do
Currently, AMZN is playing with the lower end of this persistent range. Therefore, it cannot afford to fall below, otherwise it will become very difficult to recover. Much like the rest of the stock market, Amazon is still well above the pandemic breakout. Unfortunately, that means there’s plenty of space underneath to potentially fall over. If this geopolitical malaise continues, there is still 25% at risk before reaching strong support from March 2020.
However, we recently had two separate crashes that established strong areas of support. If the bulls can defend them, they can rebuild the uptrends and rise above the danger zone.
First, there was the dip on January 24, which was scary. AMZN bounced sharply off it and bravely rallied 20% quickly. Exactly a month later, the flash indices crashed even deeper and more spectacularly. The rebound from these lower lows was even faster and more impressive than late January.
So far, these relief rallies have not lasted, so their progress has been limited. Therefore, the bears have been trending low-high since November. Now, the onus is clearly on the bulls to change that behavior. This week and next, Amazon will need to exceed $3,120 per share to invite new buyers. Moreover, the resistance extends up to $100 more per share. There are sellers lingering everywhere, just waiting to unload their shares. If, by some miracle, the bulls can clear $3,300, then they could end the sell-the-tear meme plaguing it.
Clues should help
AMZN stock cannot do it alone. He also needs the market to stabilize. Unfortunately, politicians always trade via headlines, so stocks react with great emotion. Fundamental earnings are breaking records, and it’s not just Amazon. Even the smallest companies like SoFi (NASDAQ:SOFI) work well. Last night they released record user stats and increased sales by 60%. At least the reaction of investors was positive this time on the title.
For the rest of the week, there are extrinsic headlines to transpire. US Federal Reserve Chairman Jerome Powell speaks twice, and a few of his friends also voice opinions. Between the threats of global war and an awkward quantitative tightening cycle, the bears have a strong tailwind.
I don’t blame buyers for being shy in the meantime. I use profit and loss charts and metrics to overcome my emotions. What worked was trading options to generate income from the stable AMZN range. Buy-and-hold investors have struggled to manage this unless they are actively taking profits.
Longer-term investors should probably remain cautious during times like these. Having patience is a difficult task, but it’s the only way out. We also have to have discipline, because everything seems incredibly low. Cheap can get cheaper, especially if Russia’s invasion situation gets worse. My fundamental assumptions are that the US economy is healthy, which is a good thing. That’s why the Fed is trying to cool it down. But I must recognize the extrinsic risk of politics.
For example, Amazon’s fundamental metrics are beyond reproach. It’s the perfect startup that never stopped being one. Total revenue has doubled since 2018, without creating stock price inflation. Its price-to-sales ratio is a modest 3.4, half the price of Apple (NASDAQ:AAPL). Whatever my belief in its success, I exercise restraint. Although I trust him, I cannot say the same for the market as a whole.
Wall Street has lost its mind with the pandemic, so don’t expect logical behavior now. If I hold stocks, I would not increase my positions without geopolitical progress. Additionally, investors looking to create new positions should do so only partially. Strategically selling puts instead of buying stocks can leave a lot of room for error. It might be worth looking into call options for stock protection as well.
At the date of publication, Nicolas Chahine had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.