Amazon.com Inc. (AMZN) is trading higher by 5% in Thursday’s pre-market after announcing a 20-for-1 stock split, effective on June 6th. The retail juggernaut also increased buyback share authorization by $5 billion, doubling the current $5 billion program, even though it’s repurchased just $2.12 billion of those shares so far. The stock rallied above the psychological 3,000 level after the news but drifted lower overnight, failing to mount a single resistance level.
Questionable Timing
The announcement raises two questions about an otherwise bullish decision. First, the House Judiciary Committee referred Amazon to the Department of Justice earlier in the day to examine potential criminal conduct by “senior executives”. The referral alleges the company engaged in a “pattern and practice of misleading conduct that appeared designed to influence, obstruct, or impede the Committee’s 16-month investigation into competition in digital markets”. There’s little doubt that CEO Jeff Bezos will be a prime target in this investigation.
Second, why did Amazon pick this moment to announce a split when investors have been begging for cheaper shares for years? For starters, the company has been pummeled by inflation and Ukraine so far in 2022, dropping to a 20-month low on Wednesday, and executives may feel a split is the only way to prop up price. It’s also sleight of hand because it adds nothing to valuation, especially in a fintech-driven market in which small investors can buy exposure by the dollar, not share.
Wall Street and Technical Outlook
Wall Street consensus remains euphoric despite more than a year of sub-par performance, yielding a ‘Buy’ rating based upon 42 ‘Buy’, 7 ‘Overweight’, and 3 ‘Hold’ recommendations. Price targets currently range from a low of $3,472 to a Street-high $5,000 while the stock is set to open Thursday’s session more than $500 below the low target. This dismal placement signals a major disconnect with skeptical Main Street investors, who see a wall of headwinds dead ahead for the retailer.
Amazon broke out above 2018 resistance above 2,000 in April 2020 and entered a powerful uptrend that stalled at 3,550 in September 2020. Five breakout attempts failed into November 2021, ahead of a major decline that fractured range support near 3,200 in January 2022. It tested new resistance and sold off in February, adding to losses that have now relinquished 23% of the stock’s value. Long-term support around 2,500 still hasn’t come into play but bearish momentum is likely to pick up when split enthusiasts run out of buying power.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
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