On Thursday, Feb. 16, shares of Amazon.com, Inc. (NASDAQ:AMZN) once again got very close to a breakout above their 2016 highs. Thus, Amazon stock caught my eye for a trade setup that could lead traders to topple over each other while chasing the stock higher. Traders and investors would be wise to keep a close eye on AMZN stock again in coming days and weeks.
Some of the highest probability trades in my eye occur when many market participants are positioned the ‘wrong’ way and a stock begins to turn, thus quickly forcing traders to reverse their bets. This often leads to explosive moves in stocks higher or lower.
This phenomenon often occurs at critical turnaround points in the broader stock indices when they become heavily oversold. When most traders have turned bearish and the market no longer has any sellers left, the path of least resistance goes to the upside, leading short sellers to cover their bets and see the market rocket higher.
AMZN Stock Charts
Similar setups occur in single name stocks at both oversold and overbought conditions as well as around critical breakout or breakdown points. AMZN stock currently finds itself at such a technical juncture where a squeeze higher to fresh all-time highs could soon occur, which in turn, may force skeptics to chase the stock higher at all cost.
On the multi-year weekly chart, we see that Amazon stock’s ascent over the last few years albeit steep has come in an orderly fashion where periods of consolidation were followed by breakouts.
Note that the yellow 50-week simple moving average held the stock as support in early 2016 and again in November that year. Although upside momentum has been making lower highs ever since the momentum high in late 2015, there is hope for momentum to begin turning higher again soon.
On the daily chart, we see that following the early February earnings report, AMZN stock shot lower, but that this sell-off was capped at a one-day event. After a few days of pausing, Amazon stock resumed its push higher and earlier this week, it revisited its pre-earnings report highs. Note that this current juncture also coincides with the previous all-time highs in AMZN stock from October 2016. From here, there is no need to over-complicate things. A break and hold above $848 could open up the next upside target for Amazon stock around the $880 area.
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