Why Amazon shares look 'vulnerable'

Amazon's tumble during the last four weeks has some investors worried that more downside is ahead for the admittedly still-hot stock.

Since peaking at $1,083.31 on the morning ahead of an earnings report that proved to be disappointing, Amazon shares have tumbled 11.5 percent through Wednesday's close of $958. Rich Ross, technical analyst at Evercore ISI, warns that "this stock is in a vulnerable technical position."

Ross told CNBC's "Power Lunch" on Wednesday that the stock has shown "classic signs of exhaustion," and is now "sitting on key support at $950 in the short term — below which could test that 200-day [moving average] down around the big round number at $900."

Even worse, the technical analyst said the stock's action is "very un-FANG like," referring to the much-discussed group of surging tech stocks Facebook, Amazon, Netflix and Google parent Alphabet.

"In three of the last five years, the stock has had 30 percent pullbacks. That's not the base case here, but with the stock just 10 percent off an all-time high going into the worst month for stocks historically, I would not be a buyer," Ross said. "I would be a buyer lower — down around $900, $870."

Taking a fundamental tact, S&P Global portfolio manager Erin Gibbs noted that the company's July earnings report was a big blow to the bulls.

"Not only did they massively miss expectations for their profit on second quarter, but the expectations of what they're going to make over the next 12 months has been almost cut in half," Gibbs said Wednesday on "Power Lunch."

"It's not that they're not making revenues — they're still taking over the world — it's just way more expensive than they originally thought. And so technology costs and marketing costs are both significantly higher," Gibbs said. "I'd say we could see more of a decline until we see some stabilization of those costs."

To be sure, no one should feel particularly bad for Amazon shareholders just yet. The stock remains 28 percent higher this year.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more