With the online retail giant kicking off its Boxing Day sale on Christmas Eve, the company's stock price could benefit from better than expected sales over the holiday period. Amazon (AMZN) is anticipating record-breaking sales this Christmas, hoping to build upon impressive growth over the past five years. The stock has been an astronomical performer this year, with returns of around 110% over 2015. The average price target for analysts is currently $738.00 and the stock is trading around $661.69 at the time of writing.
The main driver behind this spectacular move is the growth of Amazon Web Services (AWS), the company's cloud computing element. Even though it generates only 8% of the group's total revenue, it has generated 52% of the profits in the third quarter. Deutsche Bank has estimated that as a standalone business it would be worth $160 billion. However, this sort of profitability may not be extended into 2016; aggressive spending is anticipated from Amazon to expand AWS into European and Asian markets, which will put pressure on its profitability.
Another factor that could adversely affect their profitability is the decision to expand into another market. Amazon is considering leasing twenty Boeing 767 jets, a clear indication that the retailer is frustrated with distribution partners. Amazon wants to distribute their goods itself and gain more storage space simultaneously. The company could start shipping for third-partners as early as next year. However, the costs of maintaining this fleet of jets could create a large dent in the company's profitability and therefore hit their stock price over the long-term.
Also, from a technical perspective a bearish outlook is validated. Relative to other major stocks, Amazon's stock price is a lot higher above the 200-day moving average and suggests that this stock is most likely to experience a sharp pullback. The chart below shows the daily price action of Amazon's stock along with the fractal and Alligator indicators. A gap in the price action is highlighted with the two dotted yellow lines. This is an important support area and in trading a gap will always be filled eventually.
