Amazon Prime Membership in Whole Foods? Here’s your trade on Amazon (AMZN) and Whole Foods (WFM). (June 16, 2017)


I want to look at Amazon ( NASDAQ:AMZN ), and we will also take a look at Whole Foods ( NASDAQ:WFM ). But as I am sure you know Amazon ( NASDAQ:AMZN ) has a deal to buy Whole Foods ( NASDAQ:WFM ) at $42.00 a share. Whole Foods ( NASDAQ:WFM ) is actually trading above that, which is kind of weird, except when you realize that maybe what the market is doing is anticipating that somebody else is going to offer more money. Now, Whole Foods ( NASDAQ:WFM ), there is a clause in the contract that requires Whole Foods ( NASDAQ:WFM ) to pay Amazon ( NASDAQ:AMZN ) something like $400 million if the deal doesn’t go through. There are a fair number of buyers who think that Whole Foods ( NASDAQ:WFM ) might wind doing just that.

So what is the deal? Is there a trade on Whole Foods ( NASDAQ:WFM )? Frankly, I think you are just gambling. For one thing if you are buying at $42.68 then if the deal goes through you are losing 68 cents a share. That is not really trading. On the other hand, if you are buying it anticipating a higher offer, well now you are just gambling, unless you know something that you are not supposed to know. In which case you know something that you are not supposed to know, you are not supposed to trade on it. I think Whole Foods ( NASDAQ:WFM ) is, to me, it is a dead stock

Now, Amazon ( NASDAQ:AMZN ) is a different deal. Here is a 5-minute chart from pre-market this morning. The announcement runs across the tape, the stock immediately trades down. Now why the heck would this stock trade down? I will tell you why. I don’t know if it is an algorithm thing, I kind of don’t think so, but he knee-jerk reflex reaction for traders is, that whenever there is a deal like this you sell the acquiring company, and you buy the acquired company. The reason is, particularly if it is an all-cash deal, because the cash is going out of the coffers of, in this case, Amazon ( NASDAQ:AMZN ), and into the coffers of Whole Foods ( NASDAQ:WFM ). So the market trades down, that turns out to be a monster buying opportunity. It also shows you that typically, in something like this, when big news hits the tape it is like the first move is almost always the wrong way to go. This comes down, gives people a buying opportunity where they say, “Thank you very much. Anybody else want to sell?” And then the stock moves higher basically all morning.

This is the important part here, lets go to the 15-minute chart, it never gets past $1000.00. The high was 999.75. My point for mentioning this is, the stock is range-bound. I am long Amazon ( NASDAQ:AMZN ); I am long the stock. Happily I have been long it for quite a while through no particular skill on my part, I just bought Amazon ( NASDAQ:AMZN ) and have held on to it for quite a while. I wouldn’t buy Amazon ( NASDAQ:AMZN ) on a new position until the stock moves above $1000.00; $1000.00 was resistance here before. Then it ultimately ran higher; and then you can see what happened, it sold off with everything else. If the stock gets above $1000.00 after this deal, that tells me that the market really, really likes this deal. The stock is only up 2.5 percent. So you could say, “Oh my gosh $23.00!” No, 2.5 percent. This wasn’t just some monster move. The market likes the deal, but it doesn’t like it enough to push the stock to a new high.

I am saying that if the stock gets above $1000.00, that is the even number, the obvious sell, “Oh, if Amazon gets up to $1000.00 I will sell the stock.” Well when all of those orders are filled, when all of those shares available for $1000.00 are absorbed, I think the stock goes to a new high, and I think it will go fairly quickly. And this is why: Why would anybody decide that they are not going to sell at 1000.00, but they will sell at 1001.00. Or, “I am going to sell if it gets to $1003.27.” No! What I am saying is, all the limit orders are at $1000.00. Sell it at $1000.00. Sell it at 1000.00. I will bet you that there are probably a few buy-stop orders that are a little bit above 1000.00 for the reasons that I just mentioned.

In my view you want to key off of $1000.00. When the stock pushes up above here, I have got mine set at $1000.05, that is when you would want to be adding to your position. Now you have virtually no reason to buy so close to $1000.00 when it has actually failed to push above that level on numerous other occasions. And besides, if the stock fell back to 960.00, don’t you just think that would be a great buying opportunity? Sure you do. And so, the stock pulls back 3.5 or 4.0 percent, you bought anticipating $1000.00 breakout. Instead it pulls back here. Don’t you kind of feel foolish? I would if I were you. So instead lets all be smart together, wait for $1000.00, wait for the stock to pop above there, and then, Boom! we are all in and on the Bezos’ blimp.

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