Stock chart’s improvement suggests Amazon is going higher
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- Amazon (AMZN) the stock jumped nearly $100 on Monday, putting the stock back above the 200-day moving average.
- The gains come amid a broad-based recovery in the technology sector.
- Optimism about tech giants looming on the 20-to-1 horizon is driving stocks higher.
Source: Tada Images / Shutterstock.com
Amazon (NASDAQ:AMZN) shares jumped $95.73 on Monday, or nearly 3%, ending its difficult three-day run. And despite starting Tuesday lower, the rally puts the e-commerce giant within striking distance of its 2022 peak and signals the start of what could be the second phase of its price recovery. Overall, AMZN stock fell sharply in the first quarter as growth stocks fell out of favor, and the Federal Reserve launched its offensive against inflation with the first rate hike in years.
With all of this in mind, I will chronicle the ongoing rebound and identify price levels to watch. I will also share two inexpensive ways to gamble using stock options.
The improving AMZN stock chart
During the first quarter of the year, correlations between technology stocks heated up. They all moved together, with risky days bringing pleasure and risky days bringing pain. And, unfortunately, there was a lot more pain than anything else.
However, there is a silver lining to such a monolithic market. All tech stocks went vertical as the reversal flipped, and investors piled into the Nasdaq.
The smiley rally in AMZN stock has been echoed by other tech giants like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGLNASDAQ:GOOG). From bottom to top, Amazon shares jumped 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. That’s what he did to the price trend along the way. In short, it reversed the short-term and medium-term uptrends in one fell swoop.
Source: TD Ameritrade’s thinkorswim® platform
As March approached, prices got stuck below all major moving averages. Worse still, they were all declining to signal that the sellers were being dominated in all timeframes. You could have gushed about the fundamentals of Amazon, and the recently announced stock split and $10 billion buyout all you wanted. But the stock price has given little reason to act on your optimism. Bears ruled and gatherings were suspicious.
However, that was then.
Now prices are rising and we have broken through all previous resistance zones formed in 2022 except one: $3,430. Monday’s jump created a pivot lower at $3,246, the level to watch. As long as we remain above, the new uptrend will remain intact and the path of least resistance will remain higher.
How the Stock Split Helps AMZN Stocks
It’s not just the improved price chart that should attract buyers to the yard. The historic 20-to-1 stock split and $10 billion buyback program add another reason for the uptrend. The timely announcement helped put a floor in prices, and the excitement surrounding the huge stock revaluation should provide a tailwind over the coming months.
Additionally, this is the first time Amazon has split its stock since 1999. In turn, shareholders of record at the June 3 close will receive an additional 19 shares for each one they hold.
If the stock price was at $3,400 at the time of the adjustment, it would return to $170, which is a price it has not 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 tracked by Apple after the tech giant suffered a seven-to-one stock split in 2014 and was quickly added to the index.
Two option trades
Collectively, the options market offers some interesting ways to position yourself for more upside. One offers more profit potential but lower profit probability. The other offers a high profit probability but a lower profit potential. You can choose your path depending on your level of optimism. Let’s start with the biggest salary.
Spread of bullish calls: Buy June bullish buy spread $3,350/$3,400 for $24.
You risk $24 to gain $26 if AMZN stock breaks above $3,400 at expiration. This translates to a potential return on investment of 108%. Traders estimate the chance of success at 48%.
Bull Put Spread: Sell the May bullish $3,000/$2,900 sell spread for $1.75.
You risk $8.25 to gain $1.75 if AMZN stock stays above $3,000 for the next 45 days. The return on investment is 20% and the market assesses the chances of success at 80%.
As of the date of publication, Tyler Craig had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.