Amazon Test Support After Weak Quarter

Published on Wednesday, 01 February 2012 16:23 Written by David Becker

New York, February 1^st (TradersHuddle.com) – Amazon.com (NASDAQ: AMZN) reported earnings Tuesday evening, which were very disappointing.  Despite generating in line profit margin performance, overall earnings and revenue create a large drop in the stock price in the extended hours session, with the negative sentiment spilling into today’s trading.

Despite strong sales of its Kindle devices fourth-quarter earnings missed expectations.  The company said sales during the quarter that ended Dec. 31 rose 35% year over year to $17.4 billion, which fell far short of what Wall Street analysts had expected.  Additionally, profits plunged 58% to $177 million, or 38 cents a share, as Amazon continued its heavy spending on infrastructure and development. That was compared with profit of $416 million, or 91 cents, in the year-earlier period.

The stock price immediately moved lower testing support levels near $170, as investors quickly exited long positions.  The market sliced through the 50-day moving average, testing the lows seen in late December.  A break of support of the $170 level will likely lead to a test of weekly support levels near $160.  Resistance is seen near the 50-day moving average near $185.  The market will likely ignore the fact that the 20-day moving average will cross above the 50-day moving average, which generally adds positive momentum to stocks.

The RSI (relative strength index), plunged nearly 20 index levels, to nearly 40 as negative momentum gained steam.  During the past 4-months, the RSI crossed below 30, which designates an overbought level, and quickly saw a bounce in price.

The MACD (moving average convergence divergence indicator), moved toward the zero line and should experience a crossover of the spread (12-day and 26-day moving averages) and the 9 day moving average of the spread.  A crossover is a sign of negative momentum which has seen follow through when it occurs near the zero line.