Shares of Amazon.com, Inc. (NASDAQ:AMZN) are higher by more than 20% year-to-date. That’s certainly nothing to scoff at, particularly for a stock that has already offered tremendous returns in recent years. The question facing investors immediately, however, is whether AMZN stock will keep up its 2017 run following first-quarter earnings, due out Thursday, April 27, after the bell.
The bulls and bears are busy debating the upcoming earnings report. Those debates can be entertaining, but I prefer to spend my time mapping out a plan so I’m ready to react to the post-earnings move in Amazon.
For some perspective, when I last mused about Amazon stock on April 7, I said that AMZN was becoming overbought in the near-term, and that profit-taking might be a good idea. Furthermore, I said that quick traders could try a quick short toward $870-$880.
A few days later, shares traded as low as $885, but more importantly, the stock has largely consolidated since April 7.
Heading into this week’s earnings report, however, I’m “flat” the stock and looking to pounce on possible opportunities once an initial post-earnings reaction has showed its face.
AMZN Stock Chart
As a reminder, Amazon’s multiyear weekly chart continues to display a very steep slope, which of course reflects both reality (great growth) as well as further hope by investors that CEO Jeffrey Bezos can continue to foray into new businesses and re-innovate the retail space.
As a strong believer in the Amazon.com story, I love this chart. But as an active investor, I also get cautious each time it reaches the upper end of the trend.
You see, the latest rally off the November 2016 lows has pushed AMZN stock back to the upper line of resistance marked on the chart, which in the past has acted as resistance. (Obviously, otherwise there wouldn’t be a line). To be clear, this doesn’t mean Amazon can’t rally above this line for a pop. But from this angle, for shares to find new multimonth upside momentum, they likely need to consolidate even more.
On the daily chart, we see that in March, Amazon stock broke out of a multiweek consolidation phase that took place near the October 2016 highs (blue box). After reaching the $920 area, the stock settled into a new consolidation period, which now once again takes the pattern of a bull flag.
The options market is currently pricing in a move of about 30 to 35 points in either direction following Thursday’s earnings report. As such, should AMZN stock be able push and hold above $920 following the earnings report, then $940-$950 becomes the next upside target.
However, these moves typically aren’t worth chasing. The stock would likely need to consolidate again before a next move higher toward $1,000 can unfold.
Alternatively, should AMZN stock drop after earnings and hold below the $885 area, then a next downside target could become $850.
As a side note, traders looking to play this using options would be better off selling options as opposed to buying options premium.
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