Amazon Looks Like Good Short Candidate (AMZN)

Year-to-date, shares of Amazon.com have fallen a little over 17%. Today, however, the stock has gained 2.14% to $111.49. Amazon (AMZN) is highly leveraged to the U.S. consumer, and as such, may be vulnerable if the pace of the economic recovery continues to stagnate. If a double dip recession materializes, a short position in AMZN may pay off handsomely. There are a number of other factors that suggest the risk/reward is skewed to the short side in this stock. Firstly, the chart in AMZN is broken. It has been making lower highs and lower lows since hitting a 52-week high on April 22. The stock has now broken through all near-term support levels and could trade all the way down to the $93-$94 range. The five-year chart, in particular looks quite bearish. Amazon's astounding growth, and correspondingly high earnings multiple, will likely continue to work against the shares in a bad market. The company's sky-high P/E may not be unjustified on a long term basis, but in a jittery market, this is not the type of stock that most investors will find compelling. AMZN trades at a trailing P/E of 48.83, a forward P/E of 28.56 and a PEG ratio of 1.45. Although AMZN is the premier online retailer, the valuation looks a little stretched considering the general downtrend in equities, sky-high unemployment, and the significant weakness in the housing market. In particular, for traders and investors looking to hedge long exposure, the stock looks like an attractive short play.