Amazon showing signs of weakness ahead of Q3 earningsAmazon report their latest earnings next week, with markets looking for fresh insights into US consumption in the face of elevated interest rates. Three months ago, the tech giant managed to blast through estimates, driving earnings per shares into the highest level in six-quarters. That raises question marks over the ability to maintain the upward trajectory as US consumers deal with a sharp increase to the cost of living. Thus far, retail sales data has highlighted continued strength on the spending-front, with rising wages helping to alleviate the pressure for now.
The Amazon web services cloud segment remains a key driver of growth, although the second quarter saw growth slow somewhat to 12% (vs 16% in Q1). There is a hope that AI investment will ultimately benefit the AWS service, although that hasn’t come to fruition quite yet. Advertising also provides a key element to watch, with a 22% gain in the second quarter highlighting the growing influence of this segment.
There is a hope that the company will continue to gain ground as spending habits largely overlook any negative impact from higher rates. The impact of inflation has been to increase the value of goods being sold, and Amazon should benefit from that as long as clients do not limit the number of items they purchase in response. With EPS expected to come in around $0.58 (vs $0.65) for the quarter, markets are looking for consolidation of the Q2 performance rather than any blockbuster figure. That may provide the basis for outperformance should conditions allow.
From a technical perspective, the break below $130.96 and trendline support brings an end to the bullish trend that has played out over the course of 2023 thus far. This feeds into the wider bearish pattern played out through 2021 and 2021, with a break up through $146 required to bring a wider bullish picture into play. While price rallied back into that key level in mid-September, we have been showing signs of weakness ever since. As we head into the Amazon earnings report, price has completed an intraday double top formation that signals the potential for another period of weakness. However, next week should help us determine whether this is a short mterm pullback before we rally, or the beginning of another period of weakness as highlighted by the weekly chart.
