Morning Comment: Amazon is getting VERY overbought

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I love following politics, so I’m one of those crazy people who actually watches political conventions on TV. When I was quite a bit younger, I remember watching Walter Mondale give his acceptance speech as the Democratic Nominee for President. Early in that speech, he declared, “I’m going to raise your taxes.” Even though I was pretty young, I immediately knew that campaign was over. He had no chance after that line was spoken.

I couldn’t help but think about that speech from way back when...when I heard VP Biden’s quote that he is going to raise the corporate tax rate. Of course, this is a lot different. Raising CORPORATE taxes could very well be a winning strategy...and it’s a proposal that should shore-up some of his base. Either way, there is no question that the Biden campaign has now drawn a new battle line by drawing a substantial distinction between himself and the President when it comes to the stock market. He’s trying to make the stock marker a “lose-lose” situation for the President. If it goes down, everyone knows that it will hurt the President, but the Biden campaign is trying to make the situation such that it will also hurt Mr. Trump if the stock market rallies into the election. I don’t know if this strategy will work, but it’s an interesting one.

Even though the “higher taxes/anti-stock market” strategy might work for Mr. Biden, I couldn’t help but think back to that Walter Mondale speech. It also helped me remember something I stated four years ago when I said that bothTrump and Hillary were lucky...because they were running against the only person they could actually beat. However, I’m now starting to think the same thing is true for both Trump and Biden this time around as well. (Ohhhhhhh....If only Michael Bloomberg was a decent debator!)

Anyway, we continue to see decent sized moves each day in the stock market, but it continues to come on very low volume. In fact, the average daily volume so far this week has been the lowest since the third week in February (just before the big wave of volatility hit us). As we said a few days ago, the lack of volume is not a surprise given that we’re coming off the July Fourth holiday...and that earnings season begins next week. This earnings season is going to be incredibly interesting. Due to the fact that so many companies have stopped giving guidance, the estimates are all over the place. We expect that more companies will announce that they will no longer provide official guidance this year, but that does not mean these conference calls won’t be important.

In our opinion, the most important answers most companies will give will be to questions about what they saw in their businesses over the last few weeks of the quarter...and early in this 3rd quarter. THAT’S when the Covid-19 cases began to pick-up once again. If we hear a lot of companies make the kind of comments that the CEO of Delta Airlines made yesterday (when he talked about “renewed caution”), it’s going to cause some headwinds for the stock market very quickly.

So as investors wait to hear these earnings calls, we’d like to highlight another stock that is getting very overbought...and thus investors need to be careful about this stock after its recent huge rally. The first stock we talked about (earlier this week) was Tesla (TSLA). The stock has not fallen since we made that comment, but it also hasn’t rallied any further either...(even though the Nasdaq has continued to see nice gains)...and we still believe it is vulnerable.

There is also a story out this morning that says TSLA could be poised for another short squeeze because the dollar value of its short interest is at record highs. Well, that might be true, but that’s only because the price of the stock has rallied by SO much. In other words, the dollar value of the short interest might be rising, but the actual number of shares are presently involved in a short sale has been falling significantly for a year now. The short interest had fallen from over 40mm shares to 15mm shares by the last reading (on June 15)...and given the 55% rally in the stock since then, it’s a good bet that the short interest has shrunk decidedly further. Therefore, we do not see a further short squeeze in the stock.

The other stock that has become incredibly overbought is Amazon (AMZN). Like it was with TSLA, our concerns about AMZN deal with technical analysis. Even if AMZN is going to greatly benefit from another lock-down (or semi lock-down...or some self imposed lock-downs), it does not mean the stock can rally further in a straight line. Let’s face it, this stock has rallied 90% in just four months!!!! Yes, it’s one of the (if not THE) best, most powerful companies in the world...but it’s not like they just discovered the vaccine for the coronavirus. Therefore, there just might be some limitations to its upside over the near-term.

Looking as the weekly RSI chart on AMZN, it has now moved above 85. That is equal to the highest level it has reached on four occasions since the financial crisis....and all four of the other times it got up into the mid 80s, it was followed by a decent decline in the stock (of 23%, 10%, 22% and 32% respectively). In fact, you have to go back to the late 1990s...and the internet find a time when the weekly RSI chart reached a more extreme level than it stands today......Yes, it did get up into the 90s twice (in 1998 & 1999), so the stock COULD still get a little more overbought before it tops-out over the next week or so. However, we have definitely reached a level that is raising a serious short-term warning signal in our humble opinion.

AMZN is a GREAT company...and its prospects are fabulous...but not only has it almost doubled since the March lows, it’s also up 18% in just six trading days!!!! There are a lot of reasons to think that AMZN will rally further as we move through the rest of the year, but we think that short term traders should consider taking profits in the stock...and long-term investors should wait for a dip before they add more money to their positions right now.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jul 10, 2020 — 9:07 AM
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