Investment Idea

Amazon is one of several FANG stocks close to breaking up

29 Jun 2022 | 2 min read

Summing up the past week, there has been a fairly strong upward trading momentum, especially for the US stock markets, with Nasdaq in the lead. But European stock markets have also performed quite well. The relative underperformance of the Stockholm Stock Exchange (OMX30) so far in 2022 can probably be explained by the OMX30 containing many cyclical industrial companies.

On Thursday 23 June, the industrial PMI figures for the US and the major European countries (Germany, the UK and France) were released. The overall picture was one of weakening industrial activity. While supply chain disruptions are easing somewhat, companies are not fully able to compensate for rising input prices. The Michigan index indicated a slightly lower long-term anticipated inflation rate in the United States.

Industrial metals such as copper and zinc have faced a weakening momentum. The market is beginning to discount a recession. In a normal business cycle, this should mean that the recent sharp rise in interest rates is slowing down.

The 10-year US Treasury yield is now traded at 3.18% compared to the last peak of 3.48% as

S&P 500 Change in forwarding 12-Month EPS versus Change in Price: 10 Years.

Source: Factset and Carlsquare. Note: Past performance is not a reliable indicator of future results.

There is also much to suggest that after a six-month period of holding value stocks, we may now be entering a rotation towards growth stocks. IT stocks, where relatively more of the profits are anticipated to occur later in time and therefore more interest-sensitive when it comes to valuation multiples.

Several of the big US FANG or Technology stocks, such as Alphabet (Google), Amazon, Apple and Microsoft, now look technically interesting in our view. They are all close to breaking above resistance levels. We choose Amazon, as the company has a fantastic ability to generate profits in a scalable form long term. This is although the Group´s earnings are estimated to decline this year.

Amazon (in USD), daily one-year share price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results

In Amazon's case, resistance is at the USD 125 level. If the stock manages to cross it, it is relatively free up towards USD 135.

Amazon (in USD), five-year price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Today's share price levels in Amazon are only marginally higher than the previous price bottom from the Covid crash in March 2020. 

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

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