Calling An Audible On Amazon.com Post-Earnings Play: Buy the Dip, Not the Open

(This is an excerpt from an article I originally published on Seeking Alpha on April 27, 2012. Click here to read the entire piece.)

After Amazon.com’s (AMZN) last earnings at the end of January, I recommended buying the stock (or call options) right at the open based on historical trading patterns (see “Why Amazon.com Was A Buy At the Open After Reporting Earnings“). That trade was a huge success as AMZN’s record for buying the post-earnings open since 2009 grew to 8 positive gains and 5 losses in the two weeks following earnings. This time around, I am a little more wary.

AMZN traded up 14% in the after-hours session following earnings. If AMZN holds those gains into Friday’s close, this performance would rank as the third best since 2009.


Amazon.com One-Day Post-Earnings Performance Since 2009
Amazon.com One-Day Post-Earnings Performance Since 2009

After the two top performing one-day, post-earnings performances, AMZN still delivered positive gains in the subsequent two-week period. See the first and fourth rows highlighted in yellow in the updated table below:

Click image for a larger view…


The Performance of the Amazon Two-Week Post-Earnings Trade
The Performance of the Amazon Two-Week Post-Earnings Trade

See the original post for a complete analysis of these data). Here is an explanation of the columns again:

{snip}

What makes me wary is that these two other large performances occurred in 2009 during a much more volatile period of trading. AMZN was also trading at much lower prices and a much lower valuation. I have to believe delivering a strong two week performance will be much harder with the stock trading near all-time highs and the NASDAQ trading near 11-year highs. To accommodate what I perceive as higher contextual risk, I am calling an “audible” here and recommending that traders wait until AMZN dips during the day.

I cannot say how much of a dip is “enough,” but the bigger the pullback, the higher the odds for the post-earnings trade to work. {snip} I will be mitigating risks by targeting a call spread for purchase.


AMZN will once again reach into its October gap down after easily clearing the stubborn resistance at the 200DMA
AMZN will once again reach into its October gap down after easily clearing the stubborn resistance at the 200DMA

Source: FreeStockCharts.com

{snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on April 27, 2012. Click here to read the entire piece.)

Full disclosure: no positions

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