Amazon.com, Inc. (NASDAQ:AMZN) Shares to Fill Pre-Earnings Gap

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Amazon.com, Inc. (NASDAQ:AMZN) shares gapped down before the company released its third-quarter earnings, but the numbers suggest that the gap will get filled. AMZN shares were up 1.74% to $789.82 on Monday and an additional 0.29% in after-hours trading, reflecting upside pressure. Share prices have been trading in a 52-week range of $474.00 to $847.21. The company has a market cap of $381.82 billion at 475.71 million shares outstanding.

On its daily time frame, it can be seen that Amazon.com Inc shares are currently testing the dynamic support at the 100 SMA. This moving average is above the longer-term 200 SMA, signaling that the path of least resistance is to the upside and that the rally could resume rather than reverse. Also, the gap between the moving averages is widening, which means that bullish pressure is getting stronger.

However, price has broken below a short-term uptrend line, indicating that a larger correction may be in order. Applying the Fib tool on the latest rally shows that the 38.2% level is at $700.40, the 50% level is at $657.08, and the 61.8% level is at $613.76. The 200 SMA is also within the vicinity of the 38.2% and 50% levels, adding to their strength as a potential floor.

RSI has already made it into the oversold region and turned higher, reflecting a return in buying pressure. This might be enough to take Amazon.com Inc shares back up to the swing high near $840 and beyond. Stochastic is still on the move down, which means that there’s still some selling pressure left for a larger correction.

Amazon.com Inc recently reported weaker than expected EPS of $0.52, which was well below the consensus at $0.78. The company also ended its streak of setting record-high profits, hinting that momentum may have slowed and could plateau from here. Even though profitability was up, the pace of growth was significantly slower compared to the rates seen in earlier quarters.

Moving forward, Amazon.com Inc management suggested that expenses could continue to rise as they invest in new ways to drive revenue. Operating income guidance calls for fourth-quarter operating income between $0 and $1.25, which is down from operating income of $2.2 billion in the fourth quarter of 2015.

In any case, Amazon.com Inc still remains one of the stronger-performing US companies so these headwinds might not be enough to derail the stock’s steady climb. Some investments reported in the third quarter could soon pay off, including the 18 new warehouses ahead of the holidays and higher costs for signing content deals.

Apart from that, cash flow for the company is still looking solid as operating cash flow has increased an impressive 49% while free cash flow has increased 59%. Besides, sales are likely to pickup in the upcoming holiday season, starting from Black Friday deals in Thanksgiving all the way up to shopping for the Christmas holidays.

Amazon.com Inc is a company that offers a range of products and services through its websites. Its products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers, operating in three segments: North America, International and Amazon Web Services.

Its North America segment focuses on retail sales of consumer products from sellers and subscriptions while its International segment includes export sales from its internationally focused websites.Its Amazon Web Services segment segment focuses on the sales of compute, storage, database and other AWS service offerings for start-ups, enterprises, government agencies and academic institutions. It also offers Amazon Prime, which is an annual membership program.

To contact the reporter of the story: Samuel Rae at samuel@forexminute.com