Is recent strength in Amazon.com (NASDAQ: AMZN) – up two sessions in a row ahead of its scheduled earnings announcement after the bell on Thursday – a sign of additional strength to come? Or is it more likely that traders and more active investors will look to sell the news – and shares of AMZN – when trading begins Friday morning?
Amazon.com is trading in bear market territory, having slipped below its 200-day moving average in late November and only trading above that level briefly at the end of a rally near the end of March. But despite closing higher for the past three days in a row, the stock is not yet technically overbought. At a minimum, this suggests that Amazon.com shares could have room to run before the historical and statistical odds begin to turn against the stock in the short-term.
Amazon.com has a 4 out of 10 rating, which puts the stock one-point away “consider avoiding” territory of stocks with ratings of 3 out of 10 or less. AMZN has already earned a modest negative edge of just over a third of a percent, providing further evidence that the upside in the stock is likely limited in the near-term.
In trading moderately higher in Thursday’s session, Amazon might be helping make any quick move higher in the next day or two that much more possible. Had the stock closed higher for too many days in a row, four or five or more, for example, and traded overbought for multiple consecutive sessions, then the temptation to sell the Thursday’s earnings report might have been that much greater. As it is, shares of AMZN could withstand a significant bump higher, potentially as a result of positive sentiment over the company’s earnings report, and still not yet be so extremely overbought as to send traders scrambling to lock in gains.
Far more overbought ahead of its scheduled earnings report are shares of Coinstar (NASDAQ: CSTR). Announcing after the bell on Thursday, CSTR finished higher for three days in a row to close technically overbought above the 200-day moving average, as well as at the stock’s highest closing level in a year. This buying has given the stock a small, negative edge, and a one-point ratings downgrade to 4 out of 10.
Traders looking for overbought conditions in stocks trading in bear market territory that are also scheduled to announce earnings on Thursday may want to take a look at the bounce in shares of Deckers Outdoor Corp (NASDAQ: DECK). Up six out of the past eight trading days, DECK has rallied to new, two-week highs and could trade technically overbought if traders buy the company’s report Thursday evening after the bell.
DECK has a negative edge of a quarter of a percent and earned a one-point ratings downgrade to 3 out of 10, putting the stock in our “consider avoiding” category in the short-term.
Update: Amazon.com reported earnings and revenues that beat analyst expectations. The stock is up more than 12% in the aftermarket less than an hour after the announcement. By constrast, shares of Coinstar are moving lower by 2% in afterhours trading. Less confident earnings guidance going was blamed by analysts for the selling. The company did meet pre-announced earnings that were better than expected. And last but not least, shares of Decker plunged by more than 16% in afterhours trading after the company missed earnings estimates after the bell on Thursday.
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David Penn is Editor in Chief of TradingMarkets.com