PreMarket Prep Stock Of The Day: Amazon

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

There is a certain day when the price action is an issue is much more important than all others. To this investor, that day is when a company announces an earnings report. With this in mind, the price action in Amazon.com, Inc. AMZN since its monster earnings beat makes it the PreMarket Stock Of The Day.

Pre-Earnings Rally: On most occasions, strong companies in long-term uptrends will rally into an upcoming earnings report. The obvious reason being, the company has beat Wall Street estimates on a consistent basis and that's why the price of the issue has appreciated.

While Amazon was already in the midst of a rally off its March low ($2,881), it had an impressive five days heading into its first-quarter report. From its low on April 23 ($3,308.50), the issue was in striking distance of its all-time high ($3,552.25) when it peaked on the day of the report at $3,514.45 and ended the session at $3,471.31.

Blowout Report And Raised Guidance: After the close on April 29, the company reported quarterly earnings of $15.79 per share, which beat the analyst consensus estimate of $9.54. Quarterly sales of $108.50 billion beat the analyst consensus estimate of $104.46 billion.

In addition, the company raised sales guidance, reached 200 million Amazon Prime members and AWS had a $54 billion annual run-rate business.

Tale Of Two Tapes: As expected the issue went into orbit in after-hours trading. In fact, it surpassed its all-time high by over $100, peaking at $3,667.66, and sharply reversed course. Interestingly, it drifted lower to its former all-time high area by the end of the after-hours session, going out at $3,553.

The issue drifted lower from that level but still managed to open the regular session at $3,525.12. It continued higher but stopped dead in its tracks when it made a new all-time high by a few dollars at $3,554 and reversed course once again.

Closed In The Red: For the remainder of the day, there was profit-taking in the issue. In fact, after being in the green by $196 in the after-hours session, it ended the day in the red ($3,467.42 vs. $3,471.31).

Sell The News: Not including Tuesday's price action, Amazon was lower in five of the next six trading sessions falling from $3,467.42 to $3,190.46 on Monday. In Tuesday’s session, it has made a post-earnings low at $3,127.27 and is now in the green by $40 at $3,229.56 as of 1:30 p.m. ET. That low comes in just above its April 15 low $3,115.55.

Lesson Learned: Investors should take after-hours and premarket trading action with a grain of salt. Between news algos, super-aggressive traders and traders stuck on the wrong side of a trade, issues can go to an extreme level.

In this instance, if one had ignored the after-hours price and only focused on the current all-time high as a possible exit, they could have had an excellent exit or short ($3,552.25 vs. $3,554).