After a big 2015, shares of Amazon.com, Inc. (NASDAQ:AMZN) offered more gains for investors with a 13% year-to-date rally. As a long-term believer in the Amazon.com story and AMZN stock, I am no fan of betting against it for more than a trade. However, Amazon stock has wiggled itself into a tight spot where prudent traders must respect the potential for significant moves in either direction.
A simple trend-following technique that has served me well over the years is to look for stocks that performed well over the previous twelve months and then look to buy them at the lower end of their respective trading ranges in the New Year.
This simple but effective strategy served traders well with AMZN stock in 2016. Although Amazon stock may appear to perform well in 2017 based on a pure trend-following perspective and looking at the price action, from a duration and momentum perspective, the stock’s rally may be getting a little long in the tooth.
The next major scheduled news catalyst for Amazon.com and its investors is the next earnings date on Jan. 26. Traders and investors involved in AMZN stock would be wise to circle this date, as it will reflect the success of the 2016 holiday shopping season and it will offer more forecasts and insights into future plans, such as package delivery by drones.
AMZN Stock Charts
Looking at the multi-year weekly chart, we see that Amazon stock took its rally into a much steeper slope in 2015 after an already steep slope in the years before. In January 2016, along with the broader stock market, AMZN stock pulled back significantly (down 30%), which cleansed it from weak investors’ hands and gave way to the next leg higher and all-time highs by October 2016.
However, note that from a momentum perspective that while the price pushed to new all-time highs in 2016, momentum — as represented by the MACD oscillator at the bottom of the chart — merely pushed to a lower high. While this alone is no reason to believe Amazon stock would fall into a major bear trap in 2017, it may be challenging for the stock to push to new highs on a sustainable basis until it rests for a while.
On the daily chart, we see that after AMZN stock topped out in October, it proceeded to gap lower following its late October earnings. While Amazon stock did rally along with the broader market following the U.S. election results, through a multi-month lens, the stock remains in a wedge-like consolidation phase.
Furthermore, note that the stock currently trades below its yellow 50-day and its blue 100-day moving averages and that the 50-day has recently begun to push below the 100-day. From where I sit, AMZN stock will need an important catalyst, such as its January earnings report, to push it meaningfully out of this range and either above $780 and then toward a next upside target near $820, or below $730 and then possibly into the mid- to high-$600s as the next downside target.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
