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Amazon.com Inc. (AMZN) stock has fallen about 18% from its 2018 highs, and it may head even lower. Technical analysis suggests that the stock may decline an additional 12% from its current price of $1,650. Should that happen, the stock would be down more than 29% from its high in early September.
Our earlier story this week predicted Amazon’s shares would begin to enter a bear market by falling 21% off their high, but Amazons’ outlook has significantly deteriorated since then.
The new driver of the stock, of course, is the very mixed third-quarter results on Thursday. Earnings easily beat expectations by 86%, but revenue missed analysts estimates by 1%. Analysts watch Amazon’s revenue growth more closely than any other indicator of the company’s future health. It was the second quarter in a row in which Amazon missed revenue estimates. The company also issued weaker than expected revenue guidance.
AMZN data by YCharts
A Sharp Decline Ahead
Amazon’s chart shows that the stock is nearing two critical technical levels. The first is the 200-day moving average and the second critical level is technical support at $1,620. Should the stock price fall below both of these points, it may drop to its next level of support at $1,450.
The relative strength index (RSI) has been trending lower since January despite the stock continuing to make new highs, a bearish divergence. It suggests that bullish momentum is leaving the stock. Additionally, volume has been rising on days the shares are falling, indicating an increasing number of sellers.
The weaker than expected third quarter results and guidance prompted analysts to cut fourth quarter revenue estimates. They have reduced their revenue forecast for the current quarter by 3% to $71.1 billion. Additionally, analysts have slashed their earnings outlook for the fourth quarter by 9% to $5.35 per share.
Next year looks weaker as well. Since the end of September, analysts have cut their 2019 revenue estimates by 1%. Additionally, revenue growth is forecast to decelerate significantly over the next three years from 31% this year to 19%.
Fundamental Chart data by YCharts
Even with the steep decline, the stock is still trading at a 2019 price to sales ratio of 2.8. That is well above Amazon’s previous peak price to sale ratio of 2.5 in 2015, 2016, and 2017. This rich price means that Amazon’s stock is vulnerable to even steeper declines if it disappoints in future quarters.