We are halfway through earnings season, and according to FactSet Research Systems (NYSE: FDS), 73% of the companies in the S&P 500 have beat consensus earnings estimates, but only 53% have exceeded revenue forecasts. 

#-ad_banner-#Considering that we are now in the fifth year of a cyclical bull market (arguably within a new secular bull market), it would not be unusual for companies to find it difficult to grow the top line much more, which after all the cost cutting of recent years would now be needed to expand net income and margins further.

Case in point, Amazon.com (NASDAQ: AMZN), which reported first-quarter results on Thursday after the close.

The company slightly exceeded Wall Street’s lowered expectations with sales of $19.7 billion versus analysts’ forecast of $19.4 billion, which represented a 23% gain on a year-over-year basis. Earnings per share (EPS) of $0.23 were in line with estimates and up from $0.18 in the same quarter one year ago. 

What’s concerning for investors is that revenue growth for the quarter was roughly the same as one year ago and significantly below the 34% growth in 2012 and more than 40% in 2011. Looking toward the second quarter, AMZN could be reporting its slowest quarterly top line growth rate since 2009. It said it now expects revenue to be in the range of $18.1 billion to $19.8 billion, while analysts expect roughly $19 billion.

Investors seemed to lose patience and sold off the stock to the tune of 9.9% on Friday, which was technically significant as it pushed AMZN below its recent lows from two weeks ago. This came despite Amazon’s announcement last week that it had reached a content agreement with HBO, allowing it to stream HBO shows. 

To keep Friday’s slump in perspective, remember that since their late 2008 lows in the mid-$30s, shares surpassed the $400 mark in December, representing a more than 1,000% increase. Through that lens, the 26% slump thus far in 2014 still feels like a healthy mean-reversion move, which just about all asset prices eventually fall subject to when the slope of their charts become too steep.

On the weekly chart, note that the recent slide has really only pushed the stock down to the lower end of the 2008 uptrending range. Also note the overshooting past the upper end of the range in the fourth quarter of last year. This was the trigger to the sell-off as it led investors to chase AMZN higher, eventually exhausting all buyers until none were left to support the stock.

The daily chart below is where things get most interesting to yours truly, at least as far as the near to medium term is concerned. After bouncing off its late 2011 uptrending support line on April 15, AMZN bounced higher ahead of the earnings report, and by doing so, retested its 200-day simple moving average from underneath for the first time in a year. 

The post earnings sell-off then took AMZN right back down to the support line and marginally below the April 15 low, and the selling continued Monday with another 2.5% drop. Momentum is on the bears’ side, and I see shares dropping to the $280 level in the short term, which is 6% below current prices.

Action to Take –>

— Sell AMZN short below $300
— Set stop-loss at $320
— Set initial price target at $280 for up to a 7% gain in 2-4 weeks

This article originally appeared on ProfitableTrading.com:
This 1,000% Gainer’s Sell-off Looks Set to Continue

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