With Amazon jumping into the pharmacy business with online prescription fulfillment and free delivery for Prime members, pharmacy stocks like CVS and Walgreens took a hit on Tuesday, both dropping more than 7% pre-market.
Will the selling continue in CVS after pushing to its highest levels, since February, on Monday?
Amazon makes big move into the pharmacy space - #CVS sells off
On Tuesday, news made rounds that Amazon is making its biggest move yet into the pharmacy space, designed to make it easy and convenient to order prescription medicines online.
Amazon Pharmacy has been quietly building out its pharmacy offering for several years:
- It ramped up internal discussions in 2017
- They acquired PillPack in 2018
- PillPack will deliver the infrastructure, including its pharmacy software, fulfillment centers and relationships with health plans.
The service will be available for customers over the age of 18 with the obligation for first time pharmacy customers to answer questions like whether they are pregnant, their date of birth and gender, as it was assigned at birth, which is information required by US law.
With Amazon Pharmacy entering the $300 billion market, the dominance of traditional pharmacies like CVS and Walgreens is in danger. Other large retailers that offer pharmacy services, like Walmart, also pose a similar threat.
As a result, it comes as no big surprise that pharmacy stocks initially sold off sharply, pushing CVS shares down more than 7% in pre-market and Walgreens Boots Alliance dropping more than 8%.
In fact, this isn't the first time a foray from Amazon into a new market has put pressure on traditional companies in their "home market": in 2017, for example, Amazon acquired Whole Foods, sending the entire grocery sector into red territory.
That said, CVS shares had trouble gaining back their lost ground on Tuesday and Wednesday, struggling to hold above 70 USD.
It remains to be seen if Amazon Pharmacy can "outplay" CVS in the pharmacy market. Pharmaceuticals are usually not something you order online and medications and side-effects are not usually things people talk about on the phone. Instead, people usually want to speak directly to someone in person.
With the recent sharp push higher in CVS shares from around 55.00 USD to over 70 USD in a matter of two weeks, bulls may have trouble regaining control.
How can you trade #CVS in this environment?
After the dynamic break above the important resistance zone at around 65.00 to 66.00 USD, a re-test of this region might be seen in the near-term. The main question here is certainly whether bulls will quickly regain control.
If so, a near-term stint back above the 70.00 USD mark might be seen, followed by a test of the region around the current yearly highs between 75.00 and 76.50 USD.
Most likely, after an initial bounce higher against 65.00/67.00 USD, another (successful) attempt to break lower will be seen, opening the door for the stock to test the region around 60.00 USD:
Source: Admiral Markets MT5 with MT5SE Add-on #CVS CFD Daily chart (from June 24, 2019, to November 18, 2020). Accessed: November 18, 2020, at 15:00 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of #CVS increased by 1.52%, in 2016, it decreased by 19.29%, in 2017, it decreased by 8.12%, in 2018, it decreased by 9.63%, and in 2019, it increased by 13.39%, meaning that over the past 5 years, the stock is down by 22.13%.
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