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Amazon (NASDAQ:AMZN) is coming under fire, and has just announced that it has cut orders of its key product, the Kindle Fire. On Friday, its shares fell by 1.81%, with the expected shipments of Kindle Fires in the first quarter of 2012 falling to 3 million from 6 million. It has been estimated that each sale of the Fire costs Amazon an initial $10, as it has positioned its tablet to take on the might of Apple's (NASDAQ:AAPL) iPad offering. And certainly, Amazon has had success as its $199 tablet is estimated to have sold 5.5 million units last quarter, taking market share from Apple's $499 iPad.

The Fire is all about Amazon increasing its ongoing sales over the longer term Though it is clearly selling at a discount to cost, its has been estimated that each Kindle Fire will add $136 to revenues.

With numbers like these, it's easy to see why the shares had such an adverse reaction.

Amazon shares are currently trading around $187, and the mean 12 month price target from analysts researching the stock is $234.10 (22.5% upside potential). This stock is trading near its 50-day exponential moving average of $189.61 and marginally below its 200-day exponential moving average of $195.40. The stock fell dramatically after release of third quarter results in late October, which showed profits plunging as costs on new products rose. From the 52 week high of $246.71, the stock has continued to drift downwards, though with periods of technical strength.

Earnings per share for the last 12 months are $1.90, affected by the costs of entry into its new product orientated market. These numbers place the shares on a trailing price to earnings ratio of 100.65.

Amazon pays no dividend, preferring that investors see returns through capital appreciation. Its strategy of creating the world's largest internet retailer has seen it achieve this goal. It is also the world's largest book retailer. Now it seems to be creating a platform from which it can leverage this position.

Its CreateSpace subsidiary helps authors self publish their books in paperback format. It then offers a method (for $69) to publish them to the Kindle. Each publication, and each book sale, whether through paperback or Kindle, brings Amazon extra revenue. Self publishing is exploding, and Amazon and its subsidiary have a great product that is attractive to self publishers. Last year, Amazon also announced that it had established a new publishing house that threatens to take on the mainstream publishers. Who would back against it doing so?

However, Amazon's business strategy is not just about book publishing and sales. It is also serious about expansion into new markets. It is establishing a fulfilment center in Mumbai, India, in its attempts to break into India's $500 billion retail market. Such centers, essentially huge warehouse and distribution facilities, cost a lot of money to set up and so may negatively impact earnings in the short term. However, with the prize at stake the company sees this cost as being good value for money. I tend to agree.

Looking at the 12-month chart, I see an Elliott Wave has formed, and is coming to the end of its cycle. The upward cycle was established through March to October last year, followed by the corrective multi-phase downward pattern we have seen since. On a technical basis, and with the stock trading in the middle of its exponential market averages as noted above, I see room for a concerted and prolonged upward move in the shares approaching.

I would not normally recommend a share that has such a high price to earnings ratio and which pays no dividend. However, I see Amazon's market dominant position, as well as its $6 billion cash in bank and no debt, as irresistible at this level. This is a company where bad news is in the market, and one that is transforming itself from a conduit for sales, to full service from production to consumer.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.