Amazon (NASDAQ:AMZN) is facing a lot of challenges off and on the price chart. Increasingly though, this tech empire looks ready to strike back at bears, much to the benefit of AMZN stock bulls. Let me explain.
It has been tough to be an AMZN stock investor since this summer’s peak in share price. While the S&P 500 and NASDAQ have both eclipsed their own high water marks and are trading at new all-time highs by a bit more than 1%, the Amazon stock price sits about 12% beneath its July high.
What’s behind Wall Street’s hostile treatment of one of the modern era’s greatest far-reaching enterprises whose technology and business prowess have disrupted and transformed our lives? For one, Amazon’s last couple of quarterly reports certainly haven’t helped.
Following July’s earnings whiff, AMZN stock’s latest earnings confessional doled out lighter-than-forecast profits, soft guidance, and a serving of worry tied to increased shipping costs and declining margins in its Amazon Web Services (AWS) cloud business.
Cautious AMZN investors may also be aligning their actions with the view of Goldman Sachs. The firm’s chief U.S. equity strategist David Kostin wrote last week that antitrust action against the tech behemoth shouldn’t be dismissed and could weigh on shares for years. The warning also included Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) stock due to the firm’s belief the tech giants are facing a more challenging regulatory environment.
Lastly, a recent surprise AWS contract loss at the Defense Department for the JEDI project (Joint Enterprise Defense Infrastructure) to Microsoft (NASDAQ:MSFT) and its Azure platform has been another blow. In a nutshell, the deal won by MSFT has created a strong perception of parity between the two companies. AMZN’s days of cloud dominance could be potentially numbered.
Interestingly enough and despite the barrage of bad press, more and more AMZN stock is looking fully capable of striking back and delivering profits for bullish investors on the price chart.
AMZN Stock Weekly Chart
All stocks correct on the price chart and AMZN stock hasn’t proven immune to this investing reality. On the provided weekly chart, the past few of weeks have been spent consolidating under a third failed trendline. The pattern could understandably be interpreted as a well-positioned bear flag set against trendline resistance and $1,800 price level. But that view isn’t the entire story in the Amazon stock price.
Over the past few weeks, AMZN shares have transformed from a stock on the verge of a more menacing and larger correction, to one strongly hinting an end to this bearish phase at hand. Specifically, a double bottom formed off the 50% retracement level in early October now has a vastly-improved stochastics set up backing its ability to act as a pattern low.
What’s more, the last two weeks have produced defiantly bullish price action in Amazon stock that has put into question the bear flag’s durability. Shares have quickly reversed a bearish topping candle within the pattern and sit less than 0.50% below the high of the weekly pattern. The interpretation is a move through the formation’s high, trendline resistance and $1,800 will result in bulls striking back with a vengeance.
The Amazon Stock Trade
Unlike an early October article where I discussed short exposure in the Amazon stock price below $1,818, the technical dynamics have shifted to warrant a long-only focus in buying AMZN stock. If shares clear the described resistance near $1,800 and go on to signal a long entry through $1,818, I expect Amazon stock will be in good position to rally strongly into year-end.
On the upside I’d allow shares to challenge $2,000 to $2,050 and Amazon’s all-time high before locking in partial profits. To guard against downside risk, a stop beneath $1,750 offers a stronger risk-adjusted AMZN position which gives sufficient leeway off and on the price chart for investors.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits