We are on the tail side of Christmas headed towards Q4 and full-year earnings reports in late January. Picking the stock of one of the top retailers and playing a possible rise from expectations of positive earnings may seem like a logical decision. And sure enough, there are recommendations from analysts and financial writers on various retail stocks already starting to appear.
But let's take a closer look at a retail stock that would initially seem a logical pick for an earnings trade – Amazon.com (AMZN), sort of the Walmart of the digital age.
While Amazon has been in a ‘growth' mode and hasn't been concentrating on raising earnings, revenue has been steadily increasing. Q4 2012 revenues were up 22%, year-over-year from 2011. Q4 2013 was up 20% from 2012. From 2009 to 2013 Amazon's revenues have increased from $24.5 billion per year to $74.5 billion. Gross Income has jumped from $5.3B to $19.8B.
Amazon's stock must be a good play this time of year. If we take a quick look at a 3-year chart of AMZN we see a low in December 2011 followed by a steady rise into late January 2012, and the same thing for December 2012 into January 2013. Institutional traders must have this figured out, right?
Not quite. Amazon.com will likely announce 2014 earnings on January 29th, after the close (unconfirmed). That is 22 trading days away. I was curious what AMZN's track record was for entering trades 22 sessions before they announce Q4 and year-end earnings. It turns out an AMZN earnings play is not a high probability trade.
It has actually been a very poor trade. Only 3 years in the last 11 produced gains. The average loss was 3.4%.
It is pretty clear evidence institutions stay away from this stock this time of year. Even right after earnings, AMZN's track record is poor. In the 3 weeks after Q4/year-end earnings AMZN has lost an average 4.5%, with gains in only 5 of 17 years.
AMZN is not a stock to be in, at least on the bullish side, this time of year.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2014 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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