Another Amazon Panic – This Time Is Different For Pharmacies


Another Amazon Panic broke out last week. Amazon.com (AMZN) announced its purchase of PillPack as part of its entry into the lucrative business of selling drugs. The news immediately took down pill pushers like Walgreens Boot Alliance (WBA) and CVS Health Corporation (CVS). While WBA looks like it is already bottoming, sellers followed through with fresh pressure on CVS.

A fresh Amazon panic dropped Walgreens Boots Alliance to a fresh 50DMA breakdown and 3 1/2 year low.

CVS Health Corporation made a 4 1/2 year low back in March. While last week’s 50DMA breakdown did not create a new low, it confirmed 200DMA resistance.

For WBA, buyers took the stock well off intraday lows. This pattern looks like a bottom awaiting confirmation which means a new closing low would be particularly bearish. For CVS, The stock is in no-man’s land with ominous looking resistance from 50 and 200DMAs. Over the longer-term, both stocks are technically damaged as implied by the downtrending 200DMAs and recent multi-year lows. Thus, even a bounce from current levels will likely present new opportunities to go short.

There is a huge irony in AMZN taking down WBA just days after the Dow Jones Industrial Average (DOW) decided to include WBA in its archaic index to replace General Electric (GE). Now that AMZN will be selling just about everything WBA does, AMZN’s deal delivers the double whammy of pressuring WBA’s valuation and worsening the Dow’s decision to skip over AMZN because of the stock’s price level.

Typically, I eagerly buy into these Amazon-inspired rush for the exits in anticipation of a relief bounce as panic subsides and calmer heads prevail. The trade has worked with remarkable consistency. THIS time around, I am not interested in buying. I think THIS time is different even if the obligatory bounce happens.

Through its acquisition, AMZN will succeed in driving drug prices downward because pharmacy prices are often inflated and highly variable. These high prices allow a true competitor like AMZN to flatten out the playing field. Just a week ago I discovered pharmacy price inflation after my wife decided to shop around for some very expensive drugs. She used a site called Good RX that she recently discovered. The site directed her to Walmart (WMT) and, lo and behold, what would have been a $1000+ bill at Walgreens turned into a bill under $200.

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