Amazon's Oversold Stock Seen Jumping 10% Short Term

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Amazon.com Inc.'s (AMZN) shares have plummeted more than 20% from their all-time high in September, which amounts to a $200 billion decline in market capitalization. But battered investors may get a bit of a respite. Now, chart analysis suggests the stock is nearing a technical reversal, which could send the stock 10% higher in the short term - over the next few weeks.

AMZN data by YCharts

The chart shows the shares trading around a technical resistance level at $1,620. Should the stock trade above that point, the shares are likely to rise to $1,760 from its closing price of $1,598 on Wednesday. That would be a 10% gain. Should the stock fail to rise above resistance at $1620, it could decline as much as 8%.

Additionally, the relative strength index also suggests the shares may rise after hitting oversold levels. 

To be sure, a short-term rebound doesn't mean Amazon will advance longterm. The shares are likely to continue to face longer-term challenges after delivering weak quarterly results, with revenue coming in below estimates. It was the second quarter in a row that the company missed revenue estimates. Even worse, analysts have reduced their revenue estimates by 3% for the fourth quarter. 

Perhaps more problematic is that revenue estimates have been shaved for 2018 and the next two years.

Fundamental Chart data by YCharts

A major obstacle facing Amazon and its investors is the stock's valuation. Even with the recent steep declines, Amazon is still trading at well above its historical one-year forward price to sales ratio at 2.78. This rich valuation and the company's slower growth outlook suggest the stock faces stiff headwinds ahead.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.