Getting Your Head Around Amazon

"Amazon makes no sense," begins a recent article trying to grasp the impact of this one company on so many other companies and industries. 

As Bloomberg points out, "Executives at the biggest U.S. companies mentioned Amazon thousands of times during investor calls last year, according to transcripts—more than President Trump and almost as often as taxes."

The "Amazon effect" can be seen everywhere, from brick-and-mortar stores to shipping to technology.  It has indeed gotten to the point that it reminds me of the Buy n Large Corporation from WALL-E.

The article includes a fantastic interactive visualization showing the performance of a basket of healthcare stocks before and after the Amazon health care announcement at the end of January (spoiler alert: the other companies went down after the announcement).

Also, in the spirit of satirical covers like The Economist, they include the arrow from the Amazon logo but in this case the arrow is drooling uncontrollably.  Much like the "superheroes in trucks" videos of which my two-year old son is a huge fan, you'd think there's some sort of copyright issue, but apparently there is not.

What is undeniable is that the stock is doing exceptionally well.  

Here's a chart of AMZN for the last two years.  Notice the consistent pattern of higher highs and higher lows and how the RSI rarely gets below 40.  See how it consistently sets new highs and hasn't touched its 200-day moving average in about two years.  Oh and by the way, it's up 32% relative YTD.

How does this compare to other consumer names?

Here's a chart of AMZN and NFLX over the last year along with all the other consumer industries.

That's Netflix at the top, up 122%.  Next is AMZN, up 86% for the last year.  The strongest group shown is Multiline Retail which, at +26%, looks more like a rounding error than a group that has outperformed the SPX by 9%.

Another way to look at this is through a Relative Rotation Graph of the GICS Level 3 groups.  Basically, groups rotate clockwise around the S&P 500 which is represented by the 100/100 level in the middle of the graph.

Up and to the right means the group is outperforming with strong positive momentum.  Down and to the left means the group is underperforming with strong negative momentum.  Can you guess which group includes AMZN and NFLX?

The biggest issue I see here is that most of the other groups are rotating down and to the left.  That is, they are showing signs of weakening relative to the overall market.  This means that two mega cap behemoths can make an entire sector look pretty good, even if there is underlying weakness in the sector.


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