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Deep in the Amazon Jungle


Many fortunes have been made buying stocks high and selling higher. If that fits your style, then Amazon is already in your wheelhouse.

Amazon (AMZN) has been the absolute jewel of the Internet over the past year, more than tripling its stock price in a little over a year's time. So my first thought is, if you own it, "Congratulations", and "Use Trailing Stops", with some room underneath.

The TA's (MACD, RSI, ADX, money flow -- you name it), are wide open on the strong side so ride it until it bucks you off. The same could probably apply if you're short or thinking of shorting. Probe the short side (I would trade it small for now), use stops and hope you catch a toppy entry to take advantage of. It's also been and still is a crowded short (recent short interest still above 11% of float), which is something you need to be acutely aware of. This has been a key reason why Amazon has performed so well.

My second thought is I don't like chasing stocks much so it's nearly impossible for me to entertain thoughts of buying it. I trade and invest in the tech area extensively, but my style is to look for combinations of growth and value. So when Amazon was trading quite a bit lower it fit that criteria well. At current levels it doesn't. However, many fortunes have been made buying stocks high and selling higher. If that fits your style, then Amazon is already in your wheelhouse.

As I wrote in 21 Bullish Predictions for Tech: "10. Even though brick and mortar retail sales remain mixed to muted, eBay (EBAY) and Amazon maintain online sales momentum, emphasizing the bifurcated economic conditions" -- so I certainly think the online shopping season will be the best of retail. The question is, at this point, will it be good enough to justify the good news priced into Amazon at current levels and can it get hit with some of these econ/credit crunch conditions?

Bottom line, Amazon is not my favorite relative value in the Internet group, but it's still very strong technically. I would look to extend gains as much as possible with the use of trailing stops. Additionally, if you're looking to short, I would trade the short side carefully (maybe longer dated puts), until a clear weakening trend develops. Short interest is still quite high and the run may not be over until short interest is lower. In the Internet group I favor Google (GOOG), Yahoo (YHOO) and eBay, each for their own unique reasons. I also like some derivative plays on Amazon, like the bandwidth suppliers and Apple (AAPL).
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Position in GOOG, YHOO and AAPL.

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