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…
2024-01-30 13:06:00
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