You wouldn’t know it by looking at the stock, even if there had been any concerns about Amazon.com Inc.’s capacity to deliver its goods after United Parcel Service Inc. announced it was cutting the deliveries it does for the online retailer by more than half.
Amazon’s shares (AMZN) closed Friday at $237.68, up 1.3%. In intraday trading, it hit a peak of $240.29, surpassing the record close of $238.15 on January 28.
Investors seemed concerned about the potential effects of UPS’s (UPS) shocking news on Amazon’s operations. While the technology-heavy Nasdaq-100 Index NDX and the S&P 500 index SPX both increased 0.5% on Thursday, the stock had dropped 1%.
But on Friday, those losses were erased, and then some more. Additionally, there are some basic reasons why investors shouldn’t be concerned, so it’s not just about the technicals. (See below.)
Since there are no historical resistance areas to impede the trend, many chart analysts will argue that a record high is the most optimistic thing ever.
However, with the stock rising 33.2% during a five-month winning streak, there might be some worry that a rally is getting a bit stretched. However, an overbought technical condition at a record high can indicate underlying, longer-term strength rather than merely signaling a possible short-term decline.
Furthermore, the stock of Amazon is not overbought. The stock did come back, but not enough to cause any technical alarms, after hitting new highs in mid-December. The stock quickly returned to its previous highs.
Additionally, the company is trading significantly above its 200-day moving average, a longer-term trend separating line, which closed at $194.40, and its 50-day moving average, a shorter-term trend tracker, which stretched to $221.88 on Friday. Additionally, it is bullish that both moving averages are increasing.
The moving averages in this technical setting can turn into levels to “buy on dips.”
According to Oppenheimer technical analyst Ari Wald, “We see $220 as near-term support (50-day average) and little identifiable resistance.”
Additionally, Wald interprets the recent short-term activity as evidence that the “multi-year breakout” rally has resumed on a weekly chart, which should push the market higher still. On a weekly basis, the stock has closed at back-to-back records through Friday.
“Over the coming months, [Amazon’s stock] should continue to retrace the underperformance endured between 2020 and 2023,” Wald stated.
Fundamentals support the bullish technicals
The loss of the majority of UPS’s delivery won’t have a long-term effect on Amazon. Remember that Amazon had a surge in earnings, revenue, units, and stock price in 2019 even after FedEx Corp. (FDX) ended its air and ground delivery agreement with Amazon.
Additionally, Amazon has made significant investments in expanding its own delivery network since maintaining those relationships is costly, even if UPS claimed it was reducing the cooperation for financial reasons.
In order to support the expansion of its e-commerce company, Amazon has reportedly invested more than $160 billion in its global fulfillment, logistics, and transportation network since 2020, according to TD Cowen analyst John Blackledge. In a statement to customers, Blackledge stated, “Amazon has more than doubled the size of its fulfillment network within that time.”
He doesn’t think UPS’s action will cause Amazon to shift its emphasis to delivery speed.
Colin Sebastian, analyst at Baird, estimates that roughly 70% of domestic deliveries are already completed by Amazon. He says growing that percentage is “one important piece” of Amazon’s initiatives to lower unit costs.
“We believe the reduction in third-party deliveries is a natural evolution of the Amazon/UPS relationship, as Amazon’s lower-cost regional fulfillment network with same-day delivery hubs allow them to allocate more deliveries to Amazon-affiliated drivers,” Sebastian wrote in a research note.
And it’s not like all of UPS deliveries are going away, just most of them. Amazon also has other partners to lean on if needed.
“We’ll continue to partner with [UPS] and many other carriers to serve our customers,” Amazon spokesperson Kelly Nantel said in an emailed statement to BourseWatch.
