How To Trade Amazon Stock Heading Into Q3 Earnings

Amazon.com, Inc AMZN is set to print third-quarter financial results after the market close Thursday. The stock is trading down almost 5% heading into the event.

When the e-commerce and streaming giant printed its second-quarter results on July 28, the stock gapped up over 10% the following day. Amazon then soared an additional 7.28% over the subsequent 12 trading days before rejecting from the 200-day simple moving average and entering into a downtrend on Aug. 16.

For the second quarter, Amazon reported earnings of 18 cents per share on revenue of $121.2 billion. The company beat the consensus estimate of EPS of 13 cents on revenues of $119.1 billion.

For the third quarter, analysts expect Amazon to report EPS of 22 cents on revenues of $127.84 billion.

On Oct. 21, JPMorgan analyst Doug Anmuth maintained an Overweight rating on Amazon and lowered the price target from $185 to $175.

From a technical analysis standpoint, Amazon’s stock looks headed lower following the earnings print, having negated the most recent uptrend. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders, particularly those who are holding close dated calls or puts, take on extra risk because the institutions writing the options increase premiums to account for implied volatility.

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The Amazon Chart: Amazon negated its most recent uptrend on Thursday by printing a lower low under the Oct. 19 higher low of $113.22. The gap-down open paired with the intraday action has caused the stock to print a bearish kicker candlestick, which indicates Amazon may trade lower on Friday.

If Amazon suffers a bearish reaction and falls under the 52-week low of $101.26, the stock could be in for a steep downturn due to a lack of recent support under the area.
If Amazon receives a positive reaction to the earnings print, Thursday’s price action will have been a bear trap.
If Amazon rises on Friday, an upper gap that exists between $124.71 and $125.50 could fill. If that occurs, traders can watch for a possible bearish reversal candlestick to print near the upper range of the gap.
Amazon has resistance above at $117.16 and $122.24 and support below at $109.30 and $102.52.