Amazon's Market Mastery

Unpacking Q4 Wins & The Relative Strength

Author

Zachly Trades
August 11, 2023

Amazon's Market Mastery: Unpacking Q4 Wins & The Relative Strength

Hello dear readers,

Amazon continues to be a powerhouse in the market, and here's the latest scoop for investors:

  1. Shifts in Consumer Behavior: Amazon has noticed a multi-decade shift of enterprise customers to the cloud. However, with ongoing economic uncertainties and inflationary pressures, consumers are becoming more cautious. There's been a noticeable shift towards lower-priced items, especially in categories like electronics. Despite this, Amazon's Q4 global sales events, including the first-ever Prime Early Access Sale, outperformed expectations.

  2. AWS & Amazon Business: AWS remains a dominant force, offering a broad array of services. Amazon Business, one of the fastest-growing offerings, has reached a $35 billion annual gross sales run rate.

  3. Advertising & Prime Membership: Amazon's advertising revenues grew by 23% YoY in Q4. Prime membership continues to be a significant value proposition, with the release of "The Lord of the Rings: The Rings of Power" driving more Prime sign-ups than any previous content.

Understanding Ratio Charts

Ratio charts, such as AMZN/XLK and AMZN/SPY, are essential tools for investors and traders. But why?

  • Relative Strength: These charts show the performance of one asset relative to another. If the ratio is rising, it means the numerator (e.g., AMZN) is outperforming the denominator (e.g., XLK or SPY).

  • Decision Making: They help in making informed decisions. If AMZN is outperforming the broader tech sector (XLK) or the S&P 500 (SPY), it might be a sign of strength.

  • Diversification: By comparing individual stocks to broader indices, traders can gauge if they're overexposed to a particular stock or sector.

We'll be diving deep into these ratio charts, providing insights into Amazon's relative performance.

AMZN/SPY Weekly Chart: Something clearly seems to be shifting here. We’ve broken a multi-year DTL (down trendline). Is this a sign of future outperformance of AMZN to the S&P500? It certainly looks like it. 

AMZN/SPY Daily Chart: As the saying goes, old support becomes new resistance, and that is clearly evident. SO, the big question is, will AMZN have enough momentum thrust to break through this area of resistance and continue it’s uptrend or will this turn into a rejection?


AMZN/XLK Daily Chart: We’ve seen how AMZN is breaking out relative to the S&P in the previous charts above. Now let’s compare it to tech. If the selloff in big tech names such as AAPL and MSFT continues, it’s very possible we may see AMZN break out of the multi-year DTL on this chart as well after putting in signs of bottoming.

AMZN Daily Chart Scenario 1: First, the negative divergence highlighted on the RSI is worth paying attention too. Let’s say AMZN happens to break this bullish trendline it has held, look for a possible retest of the pre-pandemic highs around 109. At this point, it would be setting up a bullish chart pattern known as the inverse head and shoulders.

AMZN Daily Chart Scenario 2: Another possibility if the negative divergence plays out and AMZN breaks it’s bullish trendline, would be for a bullish chart pattern known as the cup and handle to form. It would something like this.

AMZN Daily Chart Scenario 3: With all of that being said, it is very possible AMZN could break the negative divergence on the RSI. We have some bullish PT’s listed here for you. It’s very possible we could see AMZN back at these price targets in the 160’s-180’s in 2024 if momentum continues.

Wrapping Up: As the financial landscape constantly evolves, staying informed is our best asset. From Amazon's market maneuvers to the nuanced world of ratio charts, knowledge truly is power. Thank you for trusting Investment Intelligence to be your guide. Until next time, keep those analytical hats on and happy investing!

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