Amazon Stock Could Break Out in the First Quarter

Amazon.com, Inc. (AMZN) is setting its sights on long-term resistance above $2,000 after reporting a "record-breaking" 2019 holiday season. While the company offered few specifics in a Dec. 26 press release, Mastercard Incorporated's (MA) Spending/Pulse indicated that last year's holiday retail sales increased a healthy 3.4% over 2018 while online sales continued their dominance with an 18.8% increase.

Of course, the devil is in the details because some news outlets reported that heavy discounting dominated the holiday sales season like it has throughout the last decade. As a result, market watchers will be looking closely at profits and margins in coming weeks to gauge the final list of winners and losers. As we know from past history, Amazon will do whatever it takes to build and protect its massive market share, including sacrificing profits.

The Phase 1 trade deal has also underpinned recent buying interest, with the laundry list of tariffs set to go into effect tin December taken off the table at the last minute. The agreement is forcing analysts to take a fresh look at 2020 GDP estimates, which will likely be raised in coming weeks. That optimism should also extend into consumer-oriented sectors because there are few signs that the decade-long economic expansion will slow before the presidential election.

Even so, things could go south for the online retail giant in coming months. Amazon has made powerful enemies in Washington since 2016, with CEO Jeff Bezos' ownership of The Washington Post ruffling political feathers. Republican support for a break-up or draconian regulation is building, while the Pentagon's decision to pick Microsoft Corporation (MSFT) over Amazon Web Services (AWS) for a massive cloud computing contract has drawn charges of interference and favoritism.

AMZN Long-Term Chart (1997 – 2019)

The company came public in May 1997 at a split-adjusted $1.97 and entered an immediate uptrend that accelerated in the summer of 1998. It added to gains at a rapid pace into April 1999, finally topping out at $110 and rolling over in a correction that found support in the low $40s. The subsequent recovery wave reached range resistance in December 1999, but sellers took control once again, carving the next stage of a double top that broke to the downside in July 2000.

The stock fell an astounding 93% into 2001, bottoming out at $6.32 following the Sept. 11 attacks. That marked the lowest low in the past 19 years, giving way to a healthy recovery wave that stalled in the mid-$50s in 2003. That price level marked resistance into a 2007 breakout and rally that ended just 12 points below the 2000 peak, when the mid-decade bull market came to an end in October 2007. 

A 2009 breakout above 2000 resistance gathered strength through the new decade, lifting the stock into market leadership. It continued to post new highs into September 2018's all-time high at $2,050 and plunged into year end with broad benchmarks. The 2019 bounce stalled less than 15 points below resistance in July, held down by trade tensions with China, while the subsequent pullback survived a series of bear raids near $1,750, underpinning fourth quarter strength.

AMZN Short-Term Chart (2017 – 2019)

The on-balance volume (OBV) accumulation-distribution indicator posted a new high with price in September 2018 and entered a distribution phase that found support near a nine-month low in December. Buying pressure in 2019 has been healthy and persistent, with OBV nearly reaching the 2018 peak in April and July. It is now turning higher with price, raising the odds for a breakout that opens the door to $2,500.

The stock has built a solid base below $1,800 that has come into narrow alignment with the 50- and 200-day exponential moving averages (EMAs), raising the odds that pullbacks into this level will offer low-risk buying opportunities. In addition, the monthly stochastics oscillator has just crossed into a bull cycle that predicts at least six to nine months of relative strength, making it nearly impossible to bet against higher prices in 2020. 

The Bottom Line

Amazon stock has turned higher after a trade deal and strong holiday season, raising the odds for a major breakout.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.