It’s a monster week for the tech and related sector of the U.S. stock market as major companies such as Amazon.com, Inc. (NASDAQ:AMZN) are scheduled to report their latest earnings. As usual, plenty of trades will be setting up on the back of these earnings reports. AMZN stock in specific has traded out a well-defined trading range over the past couple of months where traders could look to place trades. Let’s take a look at the charts.
As an important side note, this week of large-cap technology-related stocks earnings in my eye is not just the most important one for this earnings season but possibly for the past four or five earnings seasons. Both top- and bottom-line comparisons are now getting more difficult on a year-over-year basis, and that is putting many of these stocks at risk of further slowing their upside momentum and possibly through the lens of technical analysis develop lower highs on the charts.
Amazon.com for its part is scheduled to report the next batch of earnings this Thursday after the close of trading for the day. This is to say that Friday morning will be the time that active investors and traders could look to possibly enter trades in one way or another.
Amazon Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we continue to see a stock that as a function of great growth and growth prospects of the company has continued to steepen over the years. This has also brought about plenty of chart-chasing momentum traders that have blindly bought all the dips and been rewarded for this. The moment of truth will however come once the growth rates for Amazon.com start to decline or at least pause, which in turn could get some larger investors to take at least partial profits and thus leave dip buyers with some painful cuts.
To be clear, this does not mean AMZN stock can’t continue to climb over the longer run. It is all about time frames.
The MACD momentum oscillator at the bottom of the chart remains in record overbought territory and over time should see a mean-reversion move lower.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart and as discussed above, AMZN stock has over the past couple of months developed a well-defined trading range that should help active investors and traders with possible trading setups following this Thursday’s earnings report.
The March highs around the $1,600 area mark the top end of this range while $1,350 is the lower end of the range and coincides with both horizontal support as well as the blue 100-day simple moving average.
Stock traders could look to sell into or even short any major post-earnings rally, particularly should we see an intraday fading/failing of such an initial reaction. Alternatively, a drop below the $1,350 area could also offer opportunities to play AMZN stock to the short side toward its red 200-day simple moving average, currently around the $1,200 mark.
Option traders looking to generate income would likely be best positioned to sell out of the money call spreads in any of the above two post-earnings scenarios.
If you would like to learn more about a high-probability stock market income strategy such as the income trade I will be looking to put on in AMZN stock, please join me in a special webinar this Tuesday for InvestorPlace readers. Register here.
Check out Anthony Mirhaydari’s Daily Market Outlook for April 24.
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