Some of the biggest names in tech are gearing up to report earnings this week. While investors will be eagerly anticipating the results, one top technician says there's a name that you should get out of before the results come in: Amazon.
The company is set to report Thursday after the bell, and its shares have been bouncing around for several months now. The tech giant briefly held the honor of being the world's largest company by market cap at its October highs. However, what followed was a relatively steady path downward toward the December lows, and Carter Worth, head of technical analysis at Cornerstone Macro, isn't buying the shares' latest bounce to the upside.
"This security, which has been in a perfect uptrend repeatedly — over, and over and over — clearly broke trend," notes Worth. "And when it broke trend, it dropped about 37 percent." That 37 percent decline ended with the stock finding its bottom around $1,344 at the December lows.
But like the rest of the market, Amazon has since ricocheted off of those lows and now sits at around $1,626. A bounce that, according to Worth, is not built to last.
"The ricochet is essentially a 50 percent retracement. We dropped about $745, we're up $372 ... it's essentially right back to the midpoint," said Worth. "But what's important is it's basically stuck, it's stalled at that retracement level, and so ... what you can see very clearly is this tight, tight consolidation, and that typically happens before a big bet."
Since bouncing back up to the current retracement levels, the stock has fluctuated within roughly a 5 percent range. That sudden hitting of the brakes by traders ahead of earnings seems to signal an end – at least for Amazon – to the bullish breakout that kicked off 2019. But Amazon's earnings results could push the stock in either direction, and the big bet that Worth sees coming could go either way, too.
Worth believes the big bet will be a bearish one. For evidence, he points to the stock's plunge toward its December bottom. "To have sold off 37 percent into the Christmas low, that's quite a bit lower than the rest of the market. ... It just doesn't act well. Its performance relative to the market is heavy, and I think it's asymmetrical risk-reward," said Worth.
"My hunch is that this ricochet has come a long way, and this stock is a better sale than a buy."
Amazon shares were down 2.5 percent Monday compared with the Nasdaq 100 dropping 1.5 percent.