The Nasdaq broke to a new record high this week, but Amazon (NASDAQ:AMZN) missed the memo. The stark relative weakness makes it hard to suggest bull plays on Amazon stock right now. Itâ€™s a shame, really. The stars are aligning for what could have been quite the compelling narrative for a year-end run.
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Shopping season is in full swing, and the novel coronavirus is hitting the U.S. hard right now. Itâ€™s keeping many consumers shut-in and spending their shekels online instead of in the store.
At the same time, investors find themselves in an extremely bullish mood. December has a history of providing a tailwind to equities. Tack on continued optimism over the slew of vaccines being fast-tracked to market and another stimulus bill inching closer to the finish line, and youâ€™ve compiled a persuasive argument for why Amazon shares should be running hot.
And yet, theyâ€™re not. Like, at all.
Stuck in Neutral
Source: The thinkorswimÂ® platform from TD Ameritrade
AMZN first touched $3,200 on July 10. Despite some mild pushing and shoving, the e-commerce giant is still near $3,200 five months later. This has happened, mind you, while the Nasdaq bull run has continued.
Now, you could rightly argue that Amazon was soaring earlier in the year due to its unique position to prosper from the global pandemic. By the time July rolled around, the stock had gorged on so many gains that it deserved some time for digestion. And itâ€™s not like Bezosâ€™ brainchild has been falling significantly. Going sideways isnâ€™t exactly bearish.
All points are valid. But you canâ€™t escape the fact that Amazon lost its leadership role, and weâ€™re now seeing far more tempting trades in other names. Momentum chasers have departed the tech titan in search of strength elsewhere. Energy, financials, small-caps, and emerging markets are the new market darlings.
Still, itâ€™s worth asking when Amazon stock will become compelling for bull trades again. Itâ€™s unnecessary to identify the catalyst that will bring buyers back to the yard. My suggestion is to wait for the price to tell you when to pounce. Letâ€™s take a closer look at which levels Iâ€™m watching.
Amazon Stock Charts
The consolidation weâ€™ve seen since July has created a trading range. However, if you zoom in, youâ€™ll discover the most recent pivots have taken on the form of a symmetrical triangle. It is the quintessential neutral pattern and reveals just how ambivalent participants have been.
Those looking to trade this formation will be using a break of the upper trendline as their signal. The most recent pivot high near $3,250 corresponds nicely with the trendline, giving us a second reason for keying in on $3,250. If buyers can muster enough to support to carry prices north of this line, it will officially reverse the neutrality and spark a fresh uptrend. At the same time, we will have reached the high ground above both the 20-day and 50-day moving averages.
Until this happens, I suggest steering clear of aggressive directional trades. Iâ€™ll hasten to add this doesnâ€™t automatically mean I like going bearish. Thereâ€™s too much going for the broad market right now, and Amazon has potential support zones galore looming closely that would likely stymie short plays anyway.
One alternate pattern that would interest me is waiting for AMZN to get oversold into the $2,900 area, then sell put spreads. An implied volatility bump would increase the appeal even more. For my part, Iâ€™ll be setting an alert near $2,950 to be prepared if things get silly to the downside.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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