Amazon.com (NASDAQ :), already the largest retailer in the world to beat Walmart (NYSE 🙂 for that benchmark in the middle of last year, was perfectly placed for this year's global pandemic. By forcing consumers to hide, the Seattle e-tail giant enabled customers to shop from home without violating any lockdown orders.
As such, Amazon stands out in a year of fantastic returns}} for some stocks.
Given the circumstances, traders see it as a foregone conclusion that the stock will just keep pushing higher. Aside from the increasing adaptation to online shopping, Amazon continues to tap into new markets while expanding its existing efforts. This includes the company's recent online pharmacy initiative, autonomous driving startup Zooks that has just unveiled a driverless robot taxi, and the growth of Amazon Web Service, the company's cloud business now also used by Twitter (NYSE: {{44334 | TWTR).
Analysts believe that the current economic environment justifies the extreme valuation of the company. The stock closed on Tuesday at $ 3,165, up 0.26%, and based on projected free cash flow, which some analysts say could average $ 43.7 billion projected through 2021.46 analysts setting a price target for the stock for the next 12 months have a median target of $ 3,800 with a high estimate of $ 4,500.
While we consider Amazon to be a solid long-term investment, we believe the company's 72.5% YTD return is a set-up for correction as investors want to make a profit on something good. This dynamic is also visible in the share's trading pattern.
The Price appears to be about to break out of a Diamond Top – a combination of a widening pattern and a symmetrical triangle.
This is a rare event that, should it occur, almost always occurs at the top, after an extremely strong price increase. Since its formation requires a climax trading action, it manifests itself specifically at the top, while the bottoms tend to be incremental.
Admittedly, the sharp V-bottom of March was an exception. Will that exceptionalism now repeat itself and turn an infrequently seen pattern into a sequel?
Although anything is possible, we can only rely on the statistics. The unique environment that shapes the dynamics of the pattern started with wild swings. Those fluctuations preceded an anticipated great movement that never materialized as it turned into a lack of interest due to the cyclical rotation of technology.
The book supports the implications of the pattern. It started with enthusiasm just to hiss out. Both the 50 and 100 DMAs joined forces with the top of the cartridge, putting the price at a technical pressure point at this point. If the price breaks through the top of the pattern, it will have broken the bearish bias of the pattern, forcing traders to recalibrate, turning the pattern bullish.
Yesterday's Hanging Man – at this crucial crossroads of various technical forces – however, increases the likelihood of a bearish confirmation, with a lock under the hanging man's real body (opening course). This therefore suggests a downward break, with the 50 and 100 DMAs driving the price towards the 200 DMA, which is significantly lower.
The implied purpose of the pattern, obtained by measuring its height – the interested parties are expected to repeat their moves if they were right, and ignore them if they were wrong – puts the stock in the direction of $ 2,000 instead of $ 4,000.
However, keep in mind that that signal applies only to a decisive downward breach. When it's impossible to see that happen? Consider the fallout from the current EU antitrust case against the company. $ 3,000 psychological lap number, followed by a return move, the resistance of which would confirm the integrity of the pattern.
Moderate traders may be satisfied with a closing price below the December 11th low of $ 3,072.
Aggressive traders can now go short, given the attractive risk / reward ratio due to the proximity of the price to the cartridge top.
Trade Sample
Entries: $ 3,180
Stop Loss: $ 3,200
Risk: $ 20
Target: $ 3,120
Reward: $ 60
Risk: Reward Ratio: 1: 3