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AMZN Breakout - But What About The Split?
Good morning guys!
So I was chatting with a good friend last night (who is an excellent prop trader), right as he was in the middle of analyzing the recent split trade phenomenon that's been going around. If you haven't been paying attention, over the last several months, AAPL, TSLA, and NVDA have conducted stock splits, which have each boosted share prices +40%, +80%, and +40% (so far) from announcement price to peak. Word on the street is that AMZN is next up on the block, given it's high share price, intense retail interest, and recent, stagnant price action.
It makes a lot of sense if you think about it - the trade has been simple, with a 100% bat rate. Buy -> when split is announced, take profits -> 30-50% higher. Easy money. For us here at Discordia, however, we see it differently.
At this point, every algorithm and street trader has it basically mapped into their genome - buy AMZN when a split is announced. The question for us is what happens next. Obviously, the stock will pop on an announcement like that.
There is one main difference, however. In the other split announcements, the stocks were generally consolidating or resting when the news came out. The announcement sparked a pop, which drove a breakout, which was then driven by pure-high-beta momentum players, and in the case of NVDA, excellent earnings. The problem with an AMZN announcement, if it happens soon, is that the stock, just yesterday, had a huge, massive breakout. If this rally continues, (which we think it will), then a split announcement will likely have less "juice" or "oomf" to push the stock higher. If the higher prices are already starting to get baked in, then the upward move might be more fragile than expected.
While we like this breakout a LOT, as AMZN has been trading sideways for about 10 months (which constitutes enormous potential energy), we will trade any split announcement cautiously. A split would be a huge deal, but for the first time, it *may* be a sell the news event, depending on where the stock is at.
Cheers!
So I was chatting with a good friend last night (who is an excellent prop trader), right as he was in the middle of analyzing the recent split trade phenomenon that's been going around. If you haven't been paying attention, over the last several months, AAPL, TSLA, and NVDA have conducted stock splits, which have each boosted share prices +40%, +80%, and +40% (so far) from announcement price to peak. Word on the street is that AMZN is next up on the block, given it's high share price, intense retail interest, and recent, stagnant price action.
It makes a lot of sense if you think about it - the trade has been simple, with a 100% bat rate. Buy -> when split is announced, take profits -> 30-50% higher. Easy money. For us here at Discordia, however, we see it differently.
At this point, every algorithm and street trader has it basically mapped into their genome - buy AMZN when a split is announced. The question for us is what happens next. Obviously, the stock will pop on an announcement like that.
There is one main difference, however. In the other split announcements, the stocks were generally consolidating or resting when the news came out. The announcement sparked a pop, which drove a breakout, which was then driven by pure-high-beta momentum players, and in the case of NVDA, excellent earnings. The problem with an AMZN announcement, if it happens soon, is that the stock, just yesterday, had a huge, massive breakout. If this rally continues, (which we think it will), then a split announcement will likely have less "juice" or "oomf" to push the stock higher. If the higher prices are already starting to get baked in, then the upward move might be more fragile than expected.
While we like this breakout a LOT, as AMZN has been trading sideways for about 10 months (which constitutes enormous potential energy), we will trade any split announcement cautiously. A split would be a huge deal, but for the first time, it *may* be a sell the news event, depending on where the stock is at.
Cheers!
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