As the Market Struggles, Amazon Stock Is Flashing a Familiar Buy Signal

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What would you tell someone if they were to ask you, "Should I buy Amazon (NASDAQ: AMZN ) right now?" After all, Amazon stock is still well off its highs, even after the stock rallied 9.5% or $127 per share on Wednesday.

The answer depends on who the investor is and what they own. To make a blanket statement that all investors should buy Amazon amid this decline is simply irresponsible.

Should investors consider it? Absolutely. Amazon has transformed itself into a high-growth conglomerate owning multiple business under its umbrella. It's largest risk arguably is no longer from a competitive standpoint, but a regulatory standpoint. As a result, it's no surprise that it's decided to split its HQ2 initiative between New York City and Washington D.C.

All those years that bears criticized Amazon stock for its valuation weren't wrong. Even now, the stock trades at 73 times this year's earnings. While they were right about valuation, they were wrong that it would be a catalyst for the stock's implosion. In fact, it has been anything but as AMZN neared the $1 trillion mark earlier this year before the Q4 correction.

Why You Should Own Amazon Stock

We've seen Amazon grow into one of the largest companies in the U.S., disrupt the retail space and become a leader in the cloud-computing space. It's pretty incredible when you think about it, that Amazon became a market-share leader in the cloud over companies like Microsoft (NASDAQ: MSFT ) and Alphabet (NASDAQ: GOOGL , NASDAQ: GOOG ).

In any regard, the question isn't who will stop Amazon at this point, it's what will the company do next?

Management continues to pour billions into R&D, new business segments and M&A to create future growth channels. Those initiatives are fueled by the company's cash flows, which are massive thanks in part to Amazon's Prime subscription business.

Because Amazon shareholders cheer these moves rather than punish the stock for them, it gives AMZN an upper hand against traditional companies that can't get away with these pricey investments.

Those initiatives lead to big time growth. Analysts expect 30% revenue growth this year and 20% growth next year. For earnings, estimates call for a quadrupling this year to $19.80 per share and another 35% growth in 2019.

Obviously Amazon can misstep, anyone can, but its business still has a very long runway into the future. That's why I view the stock's 35% pullback as a savory buying opportunity. Amazon stock is not a name for all investors, but for many, at least some exposure is warranted. That's why on selloffs like this, even with a valuation that's still high, I simply start to nibble.

It reminds me of the meltdown in January/February of 2016. Amazon went from $700 at its highs to less than $500 in six weeks. The ~35% beating looked like the end of the road for AMZN. Even after its latest breakdown, Amazon has still tripled from those levels.

Trading AMZN Stock Price

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Given that we've seen these massive beatings in Amazon stock pan out to big gains in the future, it gives investors hope that this selloff is also similar.

It helps that these big declines are not at the hands of Amazon's slip-ups, but instead are due to market-wide selloffs. I consider these situations and selloffs of this magnitude to be long-term buy signals.

It's important to note that at its lows, the Nasdaq was down about 20% for the quarter and over 15% for the month of December. Obviously these types of declines are a bit too fast without getting any sort of bounce.

The question is whether these bounces will put us in a choppy range or will simply act as dead-cat bounces amid a rolling bear market.

That's a discussion for a different day, as it's much more far-reaching than Amazon. With Amazon stock specifically, it held the $1,350 spot we were closely watching. Should we get a further rally in the market and AMZN stock, I can see the latter rallying to $1,550.

At that point, it will start running into the 21-day moving average and just beyond that is the 50-day moving average. Should it push through both, Amazon will have a big test with downtrend resistance in the mid-$1,600s.

I fully expect this level to act as resistance, at least on the first try. My larger curiosity is whether Amazon can hold support at $1,350. If it can, or if it can put in a higher low before then, then AMZN stock may begin to rise once again.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Bret Kenwell is long AMZN and GOOGL.

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The post As the Market Struggles, Amazon Stock Is Flashing a Familiar Buy Signal appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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