Every FAANG has its day
09/07/18

●Amazon has pulled back after reaching $1 trillion market cap

●AMZN options were among the most actively traded on Thursday


 

No stock is an island—not even the mighty Amazon (AMZN).

Along with a lot of tech names the past couple of days, AMZN pulled back sharply on heavy volume in both shares and options. Amazon had the sixth-highest total options volume (more than 200,000 contracts near the middle of the day) of all individual stocks, and the most options trades (more than 66,000) among both stocks and ETFs, as shown in the following LiveAction scan:

LiveAction scan: Largest number of options trades, 9/6/18. Unusual options activity. Heavy AMZN option trading.

Source: OptionsHouse

No shocker there. Amazon is a heavily traded stock, and it was down more than 2% intraday yesterday—it’s second-consecutive -2% day—as it retreated from its record high of $2050.50, which it set on Tuesday when it briefly joined Apple (AAPL) in the trillion-dollar club.1 That’s going to get traders interested (chart below).

Even before hitting the $1 trillion milestone, Amazon was basking in the glow of investment bank Morgan Stanley upping its AMZN price target to $2,500—the highest of any firm tracking the stock.2 But even a stock on a roll like the one AMZN has been on lately will suffer its setbacks, although it’s dropped 2%–3% on back-to-back days only 30 other times since 1997.

Amazon (AMZN), 5/15/18–9/6/18. Amazon (AMZN) price chart. Pulling back from $1 trillion.

Source: OptionsHouse

Poking around into some of the specifics of the options trading showed activity wasn't particularly skewed toward calls or puts, which may mean traders were positioning themselves on both sides of the market (and/or hedging stock positions) based on the stock’s down move.

And in terms of the current pullback: Although it’s a pretty small number of historical examples, those 30 instances of consecutive -2% days were, on average, followed by additional weakness over the next five days—i.e., some days were up, others down, but the net result after five days was a net decline. That said, though, when the back-to-back down days were preceded by an up day (like Tuesday, in this case), AMZN tended to bounce back more, and more frequently, and after 10 days, the stock was up 60% of the time.2

Pullbacks happen—even the relatively short-term chart above shows AMZN shares have stubbed their toes as recently as June and July. Things can change, but betting against AMZN over time hasn’t been a particularly profitable business.

Market Mover Update: Chart watchers take note—yesterday the Nasdaq 100 (NDX) pulled back to the uptrend line described in “Pulling back on Turkey.” It’s been said that if you showed a chart to 10 traders and asked them to draw a trend line you’d get 10 different results. In this case, though, it’s a good bet that many traders have been eyeing the same line (more or less), as this one dates back to the March-April lows and has been tagged five times as the NDX marched higher:

Nasdaq 100 (NDX), 3/1/18 – 9/6/18. Nasdaq 100 (NDX) price chart. Sixth touch of the trend line.

Source: TipRanks

Also, Nike (NKE) swooshed its way to a second-straight day of gains in the face of broad-market weakness, rallying more than 1%.

Crude oil capped its third-straight day of losses with a 2%-plus downturn in the October futures contract (CLV8).

 

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1 Reuters. Amazon touches $1 trillion, on pace to overtake Apple. 9/4/18.

2 MarketWatch. Amazon stock rises after Morgan Stanley boosts target to $2,500. 8/29/18.

3 Supporting document available upon request.