Amazon Breaks Walgreens' Bullish Cycle, More Downside To Come

After recently joining the Dow Jones blue chip index, Walgreens Boots Alliance Inc WBA began the day on a high note, reporting earnings per share of $1.35 and total revenue of $34.33 billion, above analyst expectations of $1.08 and $34.05 billion. Walgreens also announced a dividend hike and $10 billion in stock buybacks. Despite concerns about same store sales figures, Walgreens was trading 2.5% higher in premarket trading.

Then Amazon.com, Inc. AMZN announced that it had agreed to buy a privately held online pharmacy called PillPack. Walgreens fell over 12 percent from its premarket high and other pharmacies such as CVS Health Corp CVS and Rite Aid Corporation RAD fell around 10 percent as well. This is not unprecedented after Amazon decides to enter a new market, known as “Amazon effect”. Even the SPDR S&P Pharmaceuticals ETF XPH was down 1 percent.

In analyzing the Walgreens weekly chart, we can see that it was trading in its rising phase, fairly early in the current market cycle. However, it has now broken below its cycle low, which is a bearish indicator for the price action remaining in this cycle. Further, the stock has been in poor technical condition, recently failing from resistance. In January, we added it to our "Riskiest of 2018" list. With so much time left in this cycle, our current target is $51 by mid-September.

Walgreens Boots Alliance Stock Chart with Weekly Bars