Introduction
Amazon's stock experienced a decline in after-hours trading following the company's announcement of its quarterly earnings, which revealed cloud computing revenue that fell short of market expectations. The report also included a cautious outlook for the upcoming quarter, prompting investors to reassess their positions. This summary delves into the details of Amazon's financial performance, the implications for its stock, and key technical levels to watch for future trading.
Cloud Revenue Performance
In the fourth quarter, Amazon Web Services (AWS), the company's cloud computing division, reported a revenue increase of 19%, amounting to $28.79 billion. However, this figure was slightly below analysts' expectations of $28.87 billion. CEO Andy Jassy indicated that the growth was hampered by inconsistent chip supply from third-party partners, which has been a recurring issue in the tech industry. Additionally, Amazon's revenue forecast for the first quarter did not meet Wall Street's projections, primarily due to adverse effects from foreign exchange fluctuations.
Stock Performance and Market Context
Despite the recent downturn, Amazon's shares have seen a notable increase of approximately 9% since the beginning of the year and over 40% in the past year. This performance significantly outpaces the S&P 500, which recorded returns of 3% and 23% over the same respective periods. The disparity in performance highlights Amazon's resilience in a challenging economic environment, although the latest earnings report has raised concerns among investors.
Technical Analysis: Rising Wedge Pattern
From a technical perspective, Amazon's stock has been moving within a rising wedge pattern since July of the previous year. This pattern has seen the stock repeatedly find support near its lower trendline and the 50-day moving average. Recently, while the stock approached the upper trendline of the wedge, it failed to achieve a decisive breakout before the earnings announcement. Notably, a bearish divergence was observed, as the relative strength index (RSI) did not reach new highs, indicating a potential decrease in buying momentum.
Key Support Levels
Investors are advised to monitor several critical support levels as the stock reacts to its earnings report. The $230 level is particularly significant, as the stock is projected to open just below this threshold. If this level does not hold, a drop to around $216 could occur, which aligns with previous peaks and troughs. A more substantial correction could bring the psychological support level of $200 into focus, an area that coincides with earlier swing highs and lows, as well as the upward sloping 200-day moving average.
Measured Move Price Target
To anticipate potential future price movements, investors can utilize the measured move technique. By calculating the depth of the rising wedge and adding it to the upper trendline, a target of $290 can be established. This level may serve as a point for investors to consider taking profits if the stock resumes its longer-term uptrend.
Conclusion
In summary, Amazon's recent earnings report has led to a decline in its stock price, driven by underwhelming cloud revenue growth and a cautious outlook. Investors should keep a close eye on critical support levels and the potential for a measured price target of $290. The situation reflects broader trends in the tech sector, particularly regarding supply chain challenges and market volatility, which may continue to influence investor sentiment and stock performance in the near future.