Will Amazon Drop 30% Like Apple?

Tickers in this article: AAPL AMZN BBY EBAY TGT WMT
NEW YORK ( TheStreet) -- Now that investors have had a chance to digest the last earnings results, it's clear they have lost their desire to continue paying increasingly higher amounts to acquire shares.

Despite many fundamental differences between Amazon (AMZN) and Apple (AAPL) , they do share one key fundamental metric and an important technical similarity that may leave you questioning how far Amazon shares may fall.

Both companies have very small short interest, and both became overbought based on my reading of the charts using DeMark Indicators. Let's take a look at the short interest of both companies.

The last reported level of short interest for Apple is dated Jan. 15. On that day the short interest was about 17.7 million shares, which may initially appear excessive but it works out to less than one day's average trading volume.

Relative to the trading float of about 940 million shares, the short interest is only about 1.9%. This is a very small amount and generally considered a good thing. I say generally because sometimes small short interest can result in fewer buyers when a stock price falls and needs buyers the most.

Short sellers wanting to lock in profits will buy back the shares they shorted, resulting in buying pressure that would not otherwise exist. Stocks often overshoot to the upside and downside, and lack of short interest exacerbates euphoric optimism and depressing fear.

Amazon also has a low level of short interest. The intuitive reaction is to view small short interest positively. If the smartest market participants are short sellers, and short sellers haven't made bets against the company, the prospects should look very favorable.

The problem that needs to be asked is, Why? Why are shorts avoiding Amazon? I believe short sellers are avoiding Amazon because they believe the price can remain irrational longer than they can stay solvent. In other words, Amazon isn't a great investment, but the herd mentality is something to take very seriously.

Apple could be considered overbought based on DeMark timing back in September, but has now gone full circle. I consider it oversold and a great value buy. Amazon, on the other hand, is now overbought and I believe the downside risk outweighs the upside potential.

Let's take a look at some very troubling numbers that investors should consider.

Amazon's operating and profit margins are not trending in the typical direction a high-flying stock usually occupies. Keep in mind that Amazon is not experiencing a one-off event with low margins. The trend started low and has moved even lower. Even after a strong holiday sales quarter, Amazon is now losing money on a trailing 12-month basis.