A piece of Amazon stock is expensive. However, it has proven to be a great investment over the years. The question is, can we still buy the stock now?
In order to answer this question, we will employ technical analysis to check the health of this stock.
This stock is probably too expensive for most people to play with. Not a very good stock to trade with using shares. So either you invest in it for the long run or you will need to employ options to play this stock. Some debit spreads will bring down the cost of trading this stock.
Since this article is not about options, I will not go into how to play the stock using options but will rather focus on the technical side of things.
As you can see from the daily chart of Amazon stock above, the stock had a very very nasty sell off. But recently it may be forming a double bottom. This is a bullish reversal chart pattern and this could potentially set a bottom for the stock.
Perhaps you might notice another chart pattern at the right bottom of the double bottom. Hidden inside it is a reverse head and shoulders bottom. So this double chart pattern plus reverse head and shoulders pattern gives us another reason to be bullish on the stock.
The stock has broken above a daily downtrend line and this is what a stock that wants to bottom usually does.
As long as the stock stays above this downtrend line, then it is very likely to continue to go higher. But at this moment, the stock is at the 200 MA resistance and this could potentially make it trade lower a bit. So do take that into consideration.
So is this a good time to buy the stock for an investment? From the charts above, the answer would be yes as long as the stock stays above the lows of the double bottom.
The weekly chart above shows the double bottom very clearly. In addition to the chart pattern, the indicators do show that this double bottom has strength in it. There was a bullish divergence in the stochastics which hint of internal strength in the stock.
Another good thing going for the stock is that there is already a weekly MACD buy signal. Together with the double bottom, this could potentially help to send the stock higher.
A doji that appeared at the right bottom of the double bottom also hints that the stock does not want to go any lower. Which is why I said that this will be a good time to buy the stock as long as the stock stays above the low of the double bottom.
There is of course resistance on the left that needs to be absorbed but the presence of the double bottom may make it easier for the stock to absorb the supply above.
Amazon is indeed a steady winner over the years. Those who are patient in holding the stock have been richly rewarded. If you look at the chart above, the recent sell off is nothing more than a blip in the chart.
The stock's 20 MA and 50 MA is still pointing upwards and as you can see, over the years the stock has been rising and rising. So one should continue to have a bullish bias on the stock as long as the stock's 20 MA and 50 MA is rising.
Back in 2020, the stock broke out of a monthly ascending triangle and the top of the chart pattern will act as a strong support for investors. As we near the end of March 2022, the monthly candlestick that may form in the chart may well end up being a monthly bottoming tail. If that happens, there is a high possibility that the stock may go higher.
There are many instances in the past where the stock went higher after a monthly bottoming tail formed.
Hopefully this analysis helps you to make a better decision to buy this stock.
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