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Amazon.com, Inc. (AMZN) shares traded above $2,000 for the first time since Oct. 2 on Wednesday, July 10, after Federal Reserve Chairman Jerome Powell told Congress that governors would apply the “Fed Put” and use rate cuts to maintain the decade-long economic expansion. The stock closed out the bullish session at $2,017.41, just 33 points under September 2018’s all-time high, and added another 11 points in Thursday’s pre-market session.
The technical stars have finally aligned for a healthy breakout that opens the door to $3,000, or $300 if the e-commerce juggernaut finally relents and splits the stock at least 10 for 1. CEO Jeff Bezos will have to perform this surgical act if he wants Amazon to join the price-weighted Dow Jones Industrial Average (DJIA) and become the second highest-capitalized component, behind Microsoft Corporation (MSFT). With a $976 billion market cap, Amazon stock is already 27 times larger than Dow, Inc. (DOW), the smallest DJIA member.
AMZN Long-Term Chart (1997 – 2019)
The company came public in May 1997, opening at a split-adjusted $1.97 and easing into a historic advance that stalled just below $100 in the first quarter of 1999. Second and fourth quarter breakout attempts failed, generating a final peak at $113 that wasn’t challenged for the next 10 years, ahead of a brutal bear market decline that relinquished 95% of the stock’s value into October 2001. Bezos has stated that the decline to $5.51, after three stock splits in less than 18 months, is a primary reason he has avoided the procedure for nearly two decades.
A powerful recovery stalled in the low $60s in 2003, yielding a three-year pullback, followed by an April 2007 breakout that stalled 12 points under resistance in October. The stock performed relatively well during the 2008 economic collapse, settling in the mid-$30s while setting the stage for a V-shaped bounce that completed a round trip into the 1999 high in an October 2009 breakout. The rally entered a rising channel in 2014 and traded within its boundaries for the next three years.
A 2018 channel breakout caught fire, lifting the stock into September’s all-time high at $2,050.50, while a volatile decline into year end pierced new support. It remounted that level in January 2019 and has now absorbed the large supply of bulls trapped by the fourth quarter sell-off. The monthly stochastic oscillator has cooperated fully with this effort, crossing into the overbought zone but holding well below prior levels that have triggered reversals.
AMZN Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator has marched in lockstep with price for years, matching relative highs and lows. It posted an all-time high in September 2018 and entered a steep distribution phase that came to an end in late December. OBV has lifted with price since that time, and it will now take just one or two rally days to post a new high. This tailwind predicts that price will soon follow, setting the stage for a major breakout.
How high can Amazon go after a breakout? The 1.272, 1.618, and 2.000 Fibonacci extensions of the fourth quarter decline place harmonic price targets at $2,250, $2,500, and $2,800. An extended testing process often unfolds after reaching the 1.272 extension, suggesting that a pullback from that level in the coming months will offer a second-chance buying opportunity. Just keep in mind that a pullback prior to a breakout now needs to hold the green trendline of higher lows near $1,800.
The Bottom Line
Amazon stock is trading less than 25 points under September 2018’s all-time high on Thursday morning and could break out, heading for price targets at $2,250 and $2,500.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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