Technical Analysis: New Indication Points to Higher Amazon Stock Prices

amazon stock
Credit:iStock.com/ADragan

Momentum Is Required for AMZN Stock to Stage an Advance

The resilience of this stock market is impeccable. Equity markets around the world are forging new all-time highs, and there’s little to suggest that the trend toward higher stock prices is going to end anytime soon—especially when heavyweight names like Amazon.com, Inc. (NASDAQ:AMZN) stock are joining in on all the fun.

Bull markets like the one that the world is currently experiencing will likely end when the market blows off in an upward direction. That is the equivalent of saying the stock market will “crash” in an upward direction when the global indices accelerate by a significant amount in a short amount of time.

I picked Amazon stock to write about for a particular reason, and that reason stems from what happened following the company’s earnings report that was released on October 24.

Amazon beat handsomely on both the top and bottom lines, and this caused AMZN stock to skyrocket, forging a new all-time high in almost an instant. This event caused a highly influential indicator to swing into bullish alignment, which suggests that further gains are on the horizon.

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The following Amazon stock chart illustrates this indication and shows its influence on the stock price.

AMZN stock chart

Chart courtesy of StockCharts.com

The indication I am referring to is called the moving average convergence/ divergence (MACD) indicator, and it is located in the lower panel of the above AMZN stock chart.

In order to stage a move towards higher prices (or lower prices), momentum is required. The MACD indicator determines whether bullish or bearish momentum is influencing the trading action in a stock. Therefore, it is a very significant and influential indicator.

Also Read:

10 Reasons to Be Bullish on Amazon Stock

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This indicator distinguishes between bullish and bearish momentum using the crossing of a signal line. A bullish MACD cross implies that bullish momentum is influencing the stock’s price, which creates a path of least resistance that is geared toward higher stock prices. The exact opposite can be said about a bearish MACD cross.

Each and every time a bullish MACD cross was generated, a progressive move toward higher AMZN stock prices followed. Each and every time a bearish MACD cross was generated, a quick and brief move toward lower Amazon stock prices followed.

The surge following earnings generated a bullish MACD cross, which is now suggesting that a progressive move toward higher stock prices is underway.

The MACD indicator clearly has the ability to imply whether this investment is set to appreciate or depreciate and, as long as the stock is trading above the metric that is highlighted on the following AMZN stock chart, I will be inclined to believe that the predominant trend is toward higher stock prices.

amazon stock chart

Chart courtesy of StockCharts.com

This stock chart has been annotated to include the 200-day moving average.

This popular and influential indicator is created by averaging Amazon stock’s closing price over the previous 200 days and plotting that value on the stock chart. The 200-day moving average acts as both a trend line and a dividing line.

As long as the 200-day moving average has a positive slope and the trend line is moving higher, it is presumed that a bullish trend is developing. As a dividing line, the 200-day moving average is used to separate bullish investments from bearish ones. Distinguishing between these two polar opposites is as easy as determining whether the investment is trading above or below the 200-day moving average.

In early 2016, AMZN stock dipped below the 200-day moving average, but was able to get a foothold above it in quick order. The stock has traded above it ever since, and any time it has come close to testing it, buying pressure has emerged and this investment has quickly appreciated.

I feel safe saying that, as long as Amazon stock is trading above the 200-day moving average, I will have the inclination to believe that a bull market is in development and that higher stock prices are on the horizon.

Given this investment’s weight in the tech-heavy NASDAQ index, I am inclined to believe that a bull market in this index is also in development.

Analyst Take:

Amazon stock skyrocketed following a better-than-expected earnings report that was disseminated on October 24. This move toward higher stock prices caused an influential indicator to swing back into bullish alignment, which is currently suggesting that further gains in AMZN stock can be expected. I am bullish on this investment, and will continue to be so, as long as it is trading above its 200-day moving average.