For today, and likely for the rest of this month, it’s all about Amazon (AMZN).

AMZN is the fourth of the so-called “FAANG” stocks to report earnings this month. Facebook (FB) reported its numbers yesterday. Netflix (NFLX) and Google’s parent company Alphabet (GOOG) announced earnings last week. Apple (AAPL) makes its way to the earnings confessional next Tuesday.

Today, though, it’s Amazon’s turn. The company will report its results after the market closes today. And the action in the stock after the announcement will likely influence the action in the broad stock market for the next few sessions.

Shares of AMZN are up about 80% over the past year. Strength in the world’s largest online retailer has certainly contributed to the 16% gain in the S&P 500 over the same timeframe – so much so that we might even say that as goes Amazon, so goes the stock market.

That relationship is even more evident during earnings season…

For example, AMZN reported earnings back in early February. The stock initially moved higher on the news. Then AMZN reversed and sold off for several straight days. That action coincided with a steep 10% correction in the S&P 500.

In April, Amazon’s earnings announcement led to a 10% spike in AMZN shares. And that rally helped put an end to a two-week decline in the broad stock market. The S&P went on to gain about 5% over the next two weeks.

So, like I said – as goes AMZN, so goes the stock market.

Of course, that leads to an obvious question…

How is Amazon going to do after its earnings announcement this afternoon?

There’s no doubt that expectations are sky-high. AMZN closed at an all-time high yesterday. It now trades at more than 230 times earnings and 26 times book value.

Granted, those earnings are expected to grow at a triple-digit pace. So the stock may not be as expensive as it looks at first glance. If AMZN reports a better-than-expected result, and increases guidance for the rest of the year, then it’s possible the stock could press even higher. That would likely inspire some additional buying pressure for the broad stock market and keep the July rally going until the end of the month.

I suspect, though, that a “sell on the news” event is more likely.

AMZN has gained more than $200 per share over the past month. That’s a 12% gain. So, there’s a good chance the market has already discounted a strong report.

In other words, a bullish earnings announcement is already priced into the stock. Even if the company reports stellar numbers, the stock may sell off as folks who bought the stock in anticipation of a strong earnings report decide to sell on the news.

And, if the company disappoints investors – even just a little – then they may jump over each other as they run for the exits.

I don’t have any stake in AMZN and I have no plans to trade it before its earnings announcement this afternoon. But I will be watching the action in the stock after the announcement. Whatever happens to AMZN is likely a prelude to what’s going to happen to the broad stock market.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today, a macro take on the bull trap we showed you yesterday…

Interesting situation. Trump puts tariffs on China. China responds, buying soybeans from others. Soybean prices tank, and soybean farmers suffer. Republicans may lose midterm elections. So, politics to the rescue.

They decide to subsidize the farmers with billions of, not their money, but our money. Hopefully the average American is too busy to figure it out. It seems that tariffs, subsidizing, and dumping are what this is all about when we strike at world trade partners. Hard to chart stupidity.

– Bernard

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