Can Amazon earnings extend 2015 gains?

Implementation of new products at Amazon show it is a market leader, yet this could damage profitability in the short term.

A person walking on an Amazon logo
Source: Bloomberg

Amazon is both a market leader and a market changer, operating on the frontline of e-commerce. This week’s announcement that it will be expanding into the travel sector comes hot off the heels of possible drone deliveries and its new cloud-based service; Amazon Web Services (AWS).

Given the predicted rise of cloud reliance and expansion, there is no doubt AWS could produce a reliable revenue stream down the line. However, with the implementation of a new product comes costs, and Thursday’s earnings release could be negatively impacted as a result.

Since the last earnings release, the stock has jumped approximately 32%, taking back much of the ground lost throughout what was a disappointing 2014 for Amazon investors. Given the long-term bull-market in this stock, this return to form is no surprise and Thursday could see those previous highs of $413 reached once more should earnings come in above estimates.

Markets are expecting an earnings per share of 63 cents, representing a fall of 30% year-on-year.

From a technical outlook, this week’s attempt to move above the $390 resistance is crucial to determining whether we can continue to shift towards that $413 high. A daily close above $390 would then bring a scenario where we would be looking out for a new support to be exhibited at that level to gauge confidence of another spike higher.

The strength of the move higher in January, coupled with the shallow 23.6% retracement seen over the past two months gives me confidence that there is more to come for the Amazon share price, and therefore I do expect us to see a daily close above $390 for the bullish signal I’m looking for. Following which, the $413 high established in January 2014 would represent the next major resistance point.

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