DataTrader: Should Traders Buy the Selling in Amazon.com?
I wonder how many traders and active investors, seeing shares of Amazon.com (AMZN) close lower by well over 4% on Tuesday thought that the stock would fall another +12% on Wednesday?
The better question may be: now that AMZN is down more than 15% in two days, how many traders and active investors see AMZN as a potential opportunity to the long side – not in spite of its sell-off, but because of it?
Going back to 1995, stocks that make sharp reversals or experience deep sell-offs as AMZN did actually have a pretty impressive track record of making significant short term gains. For example, stocks that have pulled back by more than 10% have tended to show significant short term gains one-day, two days and one-week later. Again, this research extends back to 1995 – over 15 years of stock market history.
Whether or not AMZN will respond on Thursday, Friday and next week as it and stocks like it have historically remains to be seen. As they say in sports, that’s why they play the game. But traders who have been looking for an opportunity to buy into one of the world’s most powerful and fastest growing retailers – and makers of the soon to be released Kindle reader/tablet-lite – may have been delivered the biggest sale on Amazon.com shares in months.
For those thinking that the current pullback in AMZN reprsents something dire about the stock, it is worth remembering that AMZN is only recently off year-to-date highs. It is the most natural thing in the world for a stock in that position to find itself in a blizzard of profit-taking and, at least for now, that is all that appears to be happening in the market for AMZN.
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David Penn is Editor in Chief of TradingMarkets.com