Today I’m going to provide some technical updates on my five largest current positions.
Let’s get this over with at the top: I’ve been pretty vocal about my recently established short position in Amazon. Friday was painful for us Amazon shorts, and the stock rallied more than 5%, apparently on news that it will be testing drone delivery.
Am I worried about drone testing? Absolutely not. To me, the idea of drone delivery and the market’s apparent reaction to drone delivery is a microcosm of the market’s overall opinion of Amazon: everybody is getting way ahead of themselves. Drone delivery sounds awesome, just like Amazon is an awesome company. Maybe 10 or 15 years from now, Amazon will be delivering packages with drones (if they can figure out a way to keep those expensive drones from getting shot down by rednecks…).
Here’s the problem: if somehow Amazon’s drones increased the company’s earnings to 33 times what it is earning right now, Amazon’s P/E ratio would be at 16, which is where Apple’s P/E ratio sits as I am typing this.
In my mind, there’s no way around it: the market has Amazon fever. The problem is that diagnosing the problem doesn’t make me any money. But the willingness and ability to be patient will. Amazon won’t have a 540 P/E ratio forever. At some point, it will have a reasonable P/E ratio in the 16 area like Apple. So to get to that point from here, one of three scenarios must play out: 1. Amazon will find a way to boost its earnings by over 3000%, 2. Amazon’s share price will fall by 97%, or 3. earnings will climb and share price will fall until eventually Amazon settles on a reasonable multiple.
My money is (literally) on number 3.
I was all set on Friday to write up a post about how much potential momentum Amazon would have when it breaks out of that trading range it has been in between 340 and 320. Obviously, I was hoping for a break below 320, but at least I can take some comfort in the fact that I was right about the strength of the breakout. Just not much comfort.
As far as my short position on Amazon, this breakout means only one thing: I’m going to have to wait a little longer.
About a month ago, I posted a chart of Apple that looked something like this:
And here’s what I said about Apple:
I’m not going to freak out if the next couple of weeks aren’t as rosy as everyone seems to assume they will be. I wouldn’t be surprised to see some naive traders with high expectations lose patience with Apple and sell in the next couple of weeks. After those short-term traders are flushed out, the stock should be free to (hopefully) follow the upward trend that most stocks follow in the years following a stock split.
Aaaaand here’s an updated chart of Apple:
The chart speaks for itself in this case. After I posted my thoughts on Apple, the stock proceeded to drop for almost exactly two weeks until all the impatient people were done selling, at which point the upward trend resumed. As of today, Apple is back at new post-split highs. Now if only someone had seen that coming…
Wells Fargo released earnings last Friday that were pretty much in line with analysts’ expectations. Since there were no surprises, I was interested to see how the stock would react.
Although Wells Fargo is down slightly post-earnings, this drop is not yet cause for alarm. However, a drop significantly below $51 in the next week or so might be a bad sign for the stock in the short-term.
Last time I took a look at a chart of Melco about three weeks ago, the chart looked like this:
And I had this to say:
Lower lows and lower highs looks like more waiting for MPEL shareholders in the foreseeable future.
Despite the fact that the share price is slightly down in the past three weeks, Melco shareholders now have grounds for hope that the stock’s recent fall from grace may be over.
After a seemingly relentless series of lower lows and lower highs from March to June of this year, Melco made its first higher high when it peaked at $37.00 a couple of weeks ago. In addition, during the past few days the stock has shown signs of support at around the $33 level. If that support continues to hold, $33 would be the first higher low that the stock has established in a long time.
Bank of America
I’m sure this is not the first time this phrase has been uttered, but I can’t make heads or tails out of Bank of America.
I guess the good news for shareholders is that the stock hasn’t had any problem breaking through the $15.50 level. However, it certainly hasn’t done much since. It will be interesting to see how the stock reacts to earnings on Thursday. Wells Fargo stock has pulled back slightly post-earnings after a gain of over 7% during the quarter. Bank of America, on the other hand, is down more than 2% since its last earnings report. Does that mean that BAC will see a post-earnings spike? I guess we’ll see on Thursday. Regardless, I’m holding onto my BAC shares for these reasons.
I want to take a minute to thank all the people that bought my book this past weekend while it was on sale. I hope you enjoy reading.
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