Invest in what you know. It’s timeless advice. Still, when it comes to Amazon (NASDAQ:AMZN) and one of the pandemic’s biggest winners, losses for today’s investors appear increasingly likely near-term. Let’s check-in with what’s happening off and on the AMZN stock price chart. That will be followed by a risk-adjusted determination on how to go about shopping for shares without stressing out over your next buy decision.
Fidelity fund manager Peter Lynch is a legend on Wall Street. Part of that success and continued reputation decades after leaving the business is due to the simple philosophy to “invest in what you know.” The advice fits in perfectly with shares of Amazon. But while the tech behemoth’s diverse tendrils have become increasingly important to consumers and businesses during the pandemic, buying AMZN stock right now isn’t without its risks.
In Tuesday’s session, shares of Amazon are off about 1.25%. This came after Reuters confirmed the U.S. House of Representatives antitrust report targeting Silicon Valley’s largest tech companies, to be released later this week, contains a “thinly veiled call to break up,” according to Republican Congressman Ken Buck. Surprise?
Breaking news of break-up language isn’t exactly a new direction by lawmakers investigating “killer acquisitions” or “self-preferencing” practices used to keep customers spending time and money at Amazon and the rest of today’s increasingly important, mega-cap powerhouses Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB).
There’s also the question of whether Congress could get anything done anytime soon, if ever. Trump? Biden? The system is a disaster. Besides and as InvestorPlace’s Dana Blankenhorn wrote last year, when it comes to breaking up Amazon’s cloud, retail and streaming businesses, the sum of the parts is likely more valuable to shareholders than today’s whole enchilada.
AMZN Stock Monthly Price Chart
Source: Charts by TradingView
Despite our attitude to ignore headlines goading Amazon investors to sell or trim inventory, Amazon is pricey in its current listed form. Regardless of today’s friendlier market environment, which I’ve discussed ad nauseum the past couple weeks, or if investors are drawn to distant dollar signs attached to a far-from-guaranteed future break-up, I wouldn’t recommend a straight-up purchase of Amazon shares.
The problem and taking precedent on a buy decision in shares, is the Amazon price chart. The illustrated monthly view of the stock reveals a steep trendline failure which occurred during September’s broader correction. Despite the market’s bullish follow-through day signal and leadership from the Nasdaq, Amazon remains beneath its former support line. And until proven differently, the prior trend remains overhead resistance. That’s not all though.
A Time to Pause
Coupled with a typically healthier second-stage base whose August breakout declined to work and bearishly-positioned stochastics, it’s enough to pause rather than hit the buy button on the stock. To be fair, Amazon stock isn’t entirely alone in this technical quandary. September’s correction took the wind out of a lot of momentum stocks. But I prefer not to join the misery-loves-company camp.
For now I’m rightfully cautious until deeper testing or a firming up of Amazon shares is visible. Still, I’ll concede that away from today’s technically-driven concerns, buying a fully-hedged stock collar is a winning strategy for core holdings. Bottom-line and given its flexibility, limited and reduced risk composition, investors using this type of options spread can better navigate both bear and bull markets, as well as the much more numerous gray cycles in-between.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.