Improving Stock Chart Suggests Amazon Is Going Higher

  • Amazon (AMZN) stock surged by nearly $100 on Monday, placing shares back on top of the 200-day moving average.
  • The gains come amid a broad-based recovery in the technology sector.
  • Optimism over the tech giants looming 20-for-1 split is buoying shares.
Closeup of the Amazon logo at Amazon campus in Palo Alto, California. The Palo Alto location hosts A9 Search, Amazon Web Services, and Amazon Game Studios teams.

Source: Tada Images / Shutterstock.com

Amazon (NASDAQ:AMZN) shares jumped $95.73 on Monday, or nearly 3%, ending its three-day rough patch. And despite starting Tuesday lower, the rally puts the e-commerce giant within striking distance of its 2022 high and signals the start of what could be the second phase of its price recovery. Overall, AMZN stock fell heavily in the first quarter as growth stocks fell out of favor, and the Federal Reserve began its offensive against inflation with the first rate hike in years.

With all of that in mind, I’m going to chronicle the ongoing rebound and identify which price levels to watch. I’ll also share two cheap ways to play using stock options.

AMZN Amazon $3,305.11

The Improving AMZN Stock Chart

During the first quarter of the year, correlations between tech stocks ran hot. They all moved together, with risk-on days bringing pleasure and risk-off days delivering pain. And, unfortunately, there was a great deal more pain than anything.

However, there is a silver lining to such a monolithic market. All tech stocks went vertical when the flip switched, and investors piled into the Nasdaq.

AMZN stock’s smile-inducing recovery was echoed by other tech giants like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). From low to high, Amazon shares surged 28% in a V-shaped rebound for the history books.

But it’s not just the magnitude of the move that should warm a bull’s heart. It’s what it did to the price trend along the way. In short, it reversed the short-term and intermediate-term trends higher in a single swing.

Amazon (AMZN) stock chart with bullish trend reversal

Source: The thinkorswim® platform from TD Ameritrade

Heading into March, prices found themselves stuck below all major moving averages. Worse yet, they were all declining to signal sellers dominated across all time frames. You could have gushed about Amazon’s fundamentals, and the recently announced stock split and $10 billion buyback all you wanted. But the stock price gave little reason to act on your optimism. Bears reigned, and rallies were suspect.

However, that was then.

Now, prices are rising, and we’ve broken above all previous resistance zones formed in 2022 except one: $3,430. Monday’s jump created a higher pivot low at $3,246, the level to watch. Provided we stay above it, the new uptrend will remain intact, and the path of least resistance remains higher.

How The Stock Split Helps AMZN Stock

It’s not just the improving price chart that should be bringing buyers to the yard. The historic 20-for-1 stock split and $10 billion buyback program add a further reason for bullishness. The well-timed announcement helped put a bottom in prices, and excitement surrounding the huge share repricing should provide a tailwind over the coming months.

Moreover, this is the first time Amazon has split its shares since 1999. In turn, shareholders of record at the close of June 3 will receive 19 additional shares for every one they owned.

If the share price were at $3,400 going into the adjustment, it would return to $170, which is a price it hasn’t seen in over a decade. Nonetheless, the price reduction would put it in the ballpark to be considered for inclusion in the prestigious Dow Jones Industrial Average. It’s a playbook previously followed by Apple after the tech behemoth underwent a seven-for-one stock split in 2014 and was promptly added to the index.

Two Options Trades

Collectively, the options market provides a couple of exciting ways to position for more upside. One offers more profit potential but a lower probability of profit. The other offers a high probability of profit but lower profit potential. You can pick your path depending on your level of optimism. Let’s start with the bigger payday.

Bull Call Spread: Buy the June $3,350/$3,400 bull call spread for $24.

You’re risking $24 to make $26 if AMZN stock hurdles $3,400 by expiration. That translates into a 108% potential return on investment. Traders are pricing in a 48% chance of success.

Bull Put Spread: Sell the May $3,000/$2,900 bull put spread for $1.75.

You’re risking $8.25 to make $1.75 if AMZN stock stays above $3,000 for the next 45 days. The return on investment is 20%, and the market is pricing in an 80% chance of success.

On the date of publication, Tyler Craig 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.

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