Why Costco could be in the crosshairs of Amazon.com, Inc. (NASDAQ:AMZN)

Why Costco could be in the crosshairs of Amazon.com, Inc. (NASDAQ:AMZN)

Why Costco could be in the crosshairs of Amazon.com, Inc. (NASDAQ:AMZN)

There have been some concerns among the owners of Amazon (NASDAQ: AMZN) stock and others  about the slowdown of Amazon’s revenue growth. These concerns are exaggerated because Amazon can quickly ramp up its retail sales by making one or more acquisitions in the retail space.

Since AMZN bought Whole Foods, the internet giant’s last major acquisition in the retail space, Amazon stock has increased by 61.5%, while the S&P 500 has risen by 18%.

One of the ideal acquisition targets for Amazon is Costco (NASDAQ: COST), due to the similarity  between the companies’ business models. Costco’s warehouse model works because of the membership revenues that the company receives. During Costco’s last fiscal year, its membership revenue was $3.1 billion, while its operating income was $4.4 billion. Amazon’s trailing twelve-month subscription revenue came in at $14.2 billion.

There are a number of reasons why AMZN is likely to buy Costco over the next 24-36 months. In this column, I will examine the implications of this deal for Amazon stock and look at some of the other options that AMZN could use to improve its revenue growth and boost AMZN stock in the process.

AMZN could easily absorb a decline in Prime membership, since it has other segments which deliver robust revenues and profits. However, Costco does not have this luxury. Even if Costco’s membership declines by a couple of percentage points, its operating income and business model will be seriously threatened, negatively impacting Costco stock.

Overall, the bias in prices is: Sideways.

The projected upper bound is: 1,757.84.

The projected lower bound is: 1,507.75.

The projected closing price is: 1,632.80.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 65.4580. This is not an overbought or oversold reading. The last signal was a sell 23 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.18. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 40 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 73. This is not a topping or bottoming area. The last signal was a buy 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 19 period(s) ago.

Rex Takasugi – TD Profile

AMAZON COM closed up 1.440 at 1,633.000. Volume was 53% below average (consolidating) and Bollinger Bands were 63% narrower than normal.

Open High Low Close Volume___
1,641.4501,654.6001,630.3871,633.000 3,184,462

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 1,623.33 1,600.22 1,724.68
Volatility: 21 52 45
Volume: 3,698,396 6,305,252 5,530,767

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

AMAZON COM is currently 5.3% below its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of AMZN.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on AMZN.O and have had this outlook for the last 4 periods.

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