Amazon investors were “stupidly enthusiastic”, this fund manager says

Shares of Amazon fell sharply again on Monday amid new jabs this past weekend from US President Donald Trump and Republican Senator Marco Rubio.

But the recent price drop for the e-commerce giant has more to do with being overbought than anything else, according to portfolio manager Keith Richards of ValueTrend Wealth Management of Worldsource Securities who says that investors will have a chance to jump back into Amazon once the stock returns to its more predictable trend line.

Amazon was down 5.2 per cent in trading on Monday, erasing an estimated US$53 billion from its market value and pulling the stock back 15 per cent from its all-time high, reached on March 12. Today’s downturn coincides with comments from President Trump who availed himself of Twitter once again to attack the company allegedly for causing losses to the US Postal Service and failing to pay enough taxes.

“[The USPS loses] a fortune, and this will be changed,” tweeted President Trump on Saturday. “Our fully tax paying retailers are closing stores all over the country… not a level playing field!”

A tweet from Rubio echoed the sentiment, stating that “Potential ‘new economy’ monopolies will require close monitoring.”

But more to the point of Amazon’s recent decline in share price, says Richards, is how it and the other FAANG stocks (Facebook, Amazon, Alibaba, Netflix and Google) have strayed in recent months from their well-worn trend lines.

“A lot of these stocks moved well over their 200-day moving averages,” says Richards in conversation with BNN. “One of the ways I use to determine whether or not a stock is overbought is if it’s more than ten per cent over its moving average. And Amazon at its peak back in early March was something like 37 per cent over its 200-day average, which is really, really overbought. You can see that it moved off the trend line into a bit of a hockey stick from October [onwards].”

“To me, all that’s going to happen is that Amazon is going to return to its old trend line, which by the way is a very positive trend line if you look long term,” says Richards. “But I think it could fall considerably more. It could fall another one- to two-hundred dollars a share pretty easily, because it was so overbought. People got stupidly enthusiastic over this stock. I think anywhere around $1,100 or $1,200 is going to be a screaming ‘Buy’ for Amazon. At some point, it’ll get close to that 200-day moving average and you’ll want to be buying it.

Amazon responded to President Trump’s claims, stating, “The Postal Regulatory Commission has consistently found that Amazon’s contracts with the USPS are profitable.”

“Amazon has invested hundreds of millions of dollars in a network of more than 20 package sortation facilities that inject directly into the USPS last mile network bypassing most of USPS network. This investment resulted in more efficient processes as well as thousands of jobs and related economic benefits in local communities,” said the company in a statement.

Disclosure: Cantech editor Nick Waddell owns shares of Amazon

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