Amazon (AMZN) is set to report earnings this Thursday after the bell with the stock on a roll and expectations high. However, there are signs that the impressive run may be headed for overhead resistance, according to the charts. I have been bullish on the stock and currently hold a 5.50% allocation in our growth model at Inside Edge Capital after increasing our holdings by 1.5% during our November rebalance. It’s currently our fifth-largest holding. But there are signs within the consumer discretionary sector that recent underperformance compared to the rest of the ‘growth trade’ may persist. One can see the extend of this deterioration using relative rotation graphs, which are a wonderful tool to quickly identify sector, industry, and stock rotations compared to a benchmark like the S & P 500. A stock or sector rotating in a clockwise direction is gaining relative strength and momentum versus the benchmark, which produces outperformance. An instrument rotating counter-clockwise is losing ground and should be reduced or avoided. Looking at the weekly RRG of the two biggest stocks in consumer discretionary, AMZN and Tesla (TSLA), and the Consumer Discretionary Select Sector SPDR ETF (XLY), you can see all three were attempting to rotate ‘up and in’ in a clockwise fashion until they reversed sharply at the red arrows. Amazon and Tesla reversed in the last week of 2023 and XLY just in the last two weeks. Heading into earnings on Thursday the expectations for Amazon are quite high. The street is looking for $166.04 billion in revenue with a big boost to the advertising segment after the introduction of ads to its quickly growing Prime video and Prime Membership segment. The advertising segment is growing even faster than AWS cloud, and considering the growth numbers Netflix reported, the expectation is favorable here. What the chart says Looking at the chart, we see a warning sign that the expectations of a strong report (and a resilient consumer) may already be priced into the stock and the proverbial boat is loaded too far to the bullish side. Looking at the larger weekly chart we can see a 5-wave Elliott trend has unfolded with accompanying RSI momentum divergence in this most recent push above 2023 highs. This suggests that though prices continue to march higher, they’re doing so at a decreasing rate of change, which confirms the message from the RRG chart showing AMZN rolling over in a negative heading. Heading into this week’s report we are watching the $165-$170 zone of resistance very carefully. The top of mind question is can the consumer discretionary sector stay afloat with the technical warnings signs in AMZN and the widely reported woes in TSLA? If so, the sub-mega cap companies in consumer discretionary may have their work cut out for them. I believe the sector can overall stay positive as the consumer is still in good shape and we’ll avoid a recession. So I will be looking for opportunities in industries like leisure and retail and may reduce our allocations in Tesla and Amazon…for now. DISCLOSURES: (Gordon owns TSLA and AMZN personally and in the wealth management business.) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
