I have been a long-time fan of Amazon (NASDAQ:AMZN) stock. This doesn’t mean that I exclusively suggest upside potential. In fact, my last write-up on it going into its February earnings report was a note of caution. That was a good thing because AMZN stock fell 15% after that. My overall outlook on the stock is positive, so buying it on dips is the right thing to do.
Today, we discuss reasons for my conviction, and lay out where the next entry point my be.
There are investors who prefer to not trade the shorter-term action in their stocks. I fail to see the harm in it especially in momentum stocks like this. With a little bit of chart knowledge, active investors can have significant profit opportunities. Those who dared to buy the March dip created 20% returns in less than a month.
Not everyone should trade like Warren Buffett with an extremely long time horizon. In this modern world, Wall Street is going through big changes. Even the SEC rules seem to be in flux. It’s the Wild West as traders are openly manipulating stock prices without repercussions. It’s a free-for-all fight between retail investors on Reddit and hedge funds. Sticking with investment mantras that are decades old means failing to adapt.
AMZN Stock Is Reliable So Trade It With Confidence
Amazon stock has been trading in a very wide and consistent range for 10 months. It has been fruitful to trade the edges of the range. Buy-the-dip and fade-the-rips worked like a charm. Currently the stock is in the middle, therefore there aren’t any immediate actionable lines. The next opportunity will be to buy it under $3,000 per share. It won’t go there alone but it could if the indices correct a bit. Alternatively, traders can chase it above $3,556 because it would be in open air then.
Until then, this is a seasonally weak period for equities and markets are a bit jittery. Two rallies faded in the last four days. Onus is on the bulls to prove that this is merely a hiccup and not a new trend. Otherwise being long any stock is dangerous – even this one. The indices are still near all-time highs, so there is room to fall.
Furthermore, the fear indicator CBOE Volatility Index (VIX) has found new life of late, adding to worries. The battle between buyers and sellers is heating up, and we will learn of the outcome of it soon enough.
Most of the economic tailwinds are out in the open. It is safe to assume that their effects on stock prices is already in the charts. If that’s correct then the downside scenario is more likely from here. I am not calling an absolute top, but I favor exercising caution rather than blind optimism at these levels.
As they say that “price is truth,” so I take direction from charts. Breaking into new all-time highs from AMZN stock will bring about a monstrous rally. Therefore, staying invested to a degree in it makes sense. Going all in is not a good idea because it is smart to leave room for error.
Patience Will Deliver Massive Upside Potential
To gauge the size of the potential rally we have to look back to the base. Amazon stock rallied 118% off the $1,600 pandemic crash level. Since last July it traded sideways, thereby creating a wide consolidation zone. If and when the bulls breakout, it will serve as solid footing for a new extension. Technically, the upside target from that could have 400 to 600 points from there. I know it sounds ridiculous to say it now, but I caused a few chuckles before when I discussed similar breakouts.
I don’t mind going against the grain when I have facts on my side. The fundamentals of AMZN stock are bulletproof. They continually grow their revenue streams in size and span. Amazon never ceased being a startup. They are always reaching into new sources of income. Almost every industry they enter, they completely disrupt and become a dominant force.
The rest of the world is still playing catch-up to it in the cloud. I can’t wait to see what they are cooking up next. The sky is the limit – or maybe beyond it – through Blue Origin. Until then I am a confident bull and an opportunist investor.
If the “bottom line” is the ultimate measure of success then AMZN is crushing it. They grew net income almost 10-fold in four years! Anyone needing more proof than this is being completely unreasonable. Buying dips in Amazon stock is the absolute correct thing to do.
Catching falling knives that move this fast is dangerous, therefore doing it in small tranches is best.
The overall risk on single stock opportunities is greater than ever. There is euphoria in the stock market because of massive stimuli. Having a new breed of Reddit traders adds volatility to an already fiery situation. I don’t want to call it a house of cards because it’s not. But at these altitudes, the indices are vulnerable to sharp sudden pullbacks.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.