Wall Street raises the bar for Amazon after blowout quarter, but some aren’t buying the hype

Analysts rushed to revise their price targets on Amazon following a stunning quarter, and many now see a clear shot to a $1 trillion market cap.

Count Piper Jaffray's Craig Johnson out. His charts have made him more cautious than ebullient.

"While you're seeing the fundamental analysts raising their estimates on Amazon, I look at this and I have a little bit more of a cautious kind of perspective purely looking at the charts," Johnson, chief market technician, told CNBC's "Trading Nation" on Friday.

Amazon's upside momentum appears to be lagging. Its shares hit a record intraday high on Friday, but its relative strength index has weakened: The momentum indicator hit a high of 90 at the end of January but now trades at around 60.

"When you look at the relative strength of what you're seeing with the chart of Amazon you're seeing this divergence starting to play out," Johnson said.

Johnson said Amazon's inability to hold onto session highs on Friday is another worry. At its peak on Friday, the stock was up nearly 8 percent and trading at more than $1,600. By market close, it had halved those gains and ended with a 3.6 percent increase.

Other tech heavyweights such as Netflix are seeing similar price action after reporting earnings, Johnson noted.

"Big earnings, big beats, you see the stocks moving up but they can't continue to push ahead, and from my perspective that's a little bit of a concern," said Johnson. "You can't continue to see the stocks move higher on good news so it makes me a little bit more cautious in the short to intermediate term here on some of these names."

Larry McDonald, editor of the Bear Traps Report, is also cautious on Amazon but for a different reason, one he thinks could catch the Street off guard.

"There's no better populist pinata than Amazon," McDonald said on "Trading Nation," referring to President Donald Trump's attacks on the Jeff Bezos-led company.

Trump has asserted that Amazon costs the U.S. Postal Service billions of dollars though no evidence has been presented to support his claim. McDonald believes the Trump administration could enact a change to Amazon's packaging pricing.

"The Street is not prepared for this. It could hit Amazon's bottom line 15, 20, upwards of 30 percent, and it'll be a real shocker," said McDonald. "It will create a 20 to 40 percent downdraft in the stock between now and year-end."

That type of decline would put Amazon shares in a bear market.

Amazon is up 34 percent this year, far better than the S&P 500's small decline. It is the third-best performer in the consumer discretionary sector this year.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

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

Connect