Amazon (AMZN) has taken a steep move down over the last two weeks. It just happens that Apple's iPad mini has come out around the same time. Has this new product from Apple threatened Amazon's bottom line? Has it been the cause of investor anxiety dropping Amazon's price? Let's take a look at how the iPad mini might be influencing Amazon's stock price.
Is Apple (AAPL) really taking the tablet fight to Amazon? So the story goes, but I have to ask this question: Was Apple's entry-level price of $329 competitive enough to offset the Kindle Fire HD price of $199? So far investors haven't moved the down markers for Apple. The company's market value is not rising with investor anticipation-at least not at this point.
If a threat would come from anywhere, I guess it would be an inquisitive consumer interested in a smaller screen and gravitating toward the higher resolution of the iPad mini. Since Amazon is not selling the Kindle for much profit, but has been counting on increased sales in eBooks, apps, and physical goods from its hardware store, a move by consumers toward Apple could really hurt Amazon's bottom line. If there is any investor anxiety, this could be the cause.
But Apple walks a fine line. It has to attract its competitor's customers without damaging the performance of its own products. Amazon is not near Apple in terms of product sales. Whereas Amazon is projected to sell about $8 billion worth of tablets, iPads sold that much in a quarter. iPads generate about 65 per cent more content revenue per user than iPhones, according to Barclays research. If that's largely down to bigger screens, the iPad mini may bring Apple less extra sales than its big brother does.
I guess what it all boils down to is whether Amazon can weather Apple's push into its marketing realm and come out on top. While Apple sells products for profit, Amazon sells products to generate sales. This is the reason I believe that Amazon may continue down for the near future as the competition from Apple plays itself out.
Since topping out in September and once more in October at about 262, the stock is beginning to define a bearish trend. It is too early to say if it is long term or not. But as I observe the Bollinger Bands, the stock looks like it is hugging the lower band and riding it down as it uses the middle band as resistance. This is usually signs of a strong bearish trend. The RSI indicator is supporting weakness as the stock moves but is very close to the over sold position. If it hits, the stock could either move up or sideways to compensate. The MACD also supports the RSI's position and is very bearish. Since it crossed over the 50 day MA I would gravitate toward the bearish side of movement now.
The Options Play
As the stock continues to slide down the Bollinger Bands, it is presently trading at 230.74 and I am inclined to follow the trend because it appears so strong.
- Buy the January 2013 put with a strike of '230' (priced at $8.10)
- Sell the January 2013 put with a strike of '225' (priced at $6.35)
- Net Debit to Start: $1.75
- Maximum Profit: $3.25
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Trade
- Play the Trend
- Apple's threat dampens stock's value.