Shares of online retailing and cloud computing colossus Amazon.com Inc. (AMZN) continue to soar, and one technical analyst sees yet more gains ahead, CNBC reports. After tacking on a stock price gain of just under 50% for year-to-date through Tuesday as it reached another record, Amazon's market cap now exceeds $541 billion, per YCharts.com.

That represents an increase of $185 billion since the start of 2017, a breathtaking increase in shareholder value. To illustrate how massive that gain is, only six other U.S. companies have total market caps of more than $185 billion, per Nasdaq.

Momentum Play

Even after hitting an all-time intra-day high of $1,130.60 Tuesday morning, Amazon's share price has a lot of momentum behind it, according to Todd Gordon, technical analyst and founder of TradingAnalysis.com, in remarks on CNBC. He sees Amazon trading within a channel that points to a value between $1,160 and $1,180 being reached within the next one or two months. The upper bound of Gordon's channel would represent a gain of nearly 5% from Tuesday's close.

A particularly bullish sign for Gordon is a so-called 'cup and handle' formation that he's seen forming in the charts for Amazon during the past few months, CNBC adds. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities because it signals a period of initial selling pressure followed by an advance in a stock. 

Source: CNBC

Options Strategy

Gordon suggested an options strategy that investors can use to profit from the rally in Amazon, while also obtaining some downside protection, per his CNBC comments. Gordon said he would buy the December 8 call with a strike price of $1,135 and sell the December 8 call with a strike price of $1,140. The net cost of these transactions, excluding commissions, would be $2.10 per share, or $210 for standard 100-share options contracts, he indicates. His maximum gain would be $290, if Amazon closes above $1,140 on December 8. If it closes below $1,135, his loss would be limited to $210. Gordon adds that, if the net cost of these paired transactions dips to $1.05 or less per share, "the trade probably is not working," and should be closed out, per CNBC.

Buying Market Share

The company's strong fundamentals are also likely to fuel Amazon's growth. The company's long-term strategy of aggressive pricing to increase market share will be on full view this holiday shopping season, The Wall Street Journal reports. A new departure for Amazon is cutting the prices posted by third-party merchants that sell through its site. Amazon is reimbursing sellers for the difference, while notifying the buyer that "The discount is provided by Amazon." The program is designed to win market share from low-cost brick-and-mortar rivals such as Wal-Mart Stores Inc. (WMT) and Dollar General Corp. (DG), the Journal says.

Amazon apparently is offering these discounts without consulting the seller, the Journal indicates. Sales by independent merchants are an important area of growth for Amazon, and some welcome Amazon's subsidizing this effort to increase their sales volume. But this strategy poses risks. Other merchants have agreements to offer the same price across all their sales channels, which may include Wal-Mart, for example, in addition to Amazon, and Amazon's price cuts may violate those agreements, the Journal adds.

Eyeing a New Growth Engine

Meanwhile, the next big market that Amazon might seek to invade is the prescription drug business, Bloomberg reports. Given that Amazon already sells many items found in the typical pharmacy, such as beauty supplies, toiletries, and non-prescription remedies, this seems to be a logical extension of its business. In particular, prescription drugs tend to be high-priced but lightweight, easy to ship, and do not require personal inspection by the buyer pre-sale.

Moreover, the delivery of prescriptions through the mail already is a well-established business accepted by many consumers, and even mandated by many insurers. Amazon could use its massive buying power to get attractive bulk deals on prescription medicines, especially generics, and then make deals with major insurers to become their mail-order pharmacy, Bloomberg speculates. Meanwhile, the addition of Whole Foods Market gives Amazon a brick-and-mortar infrastructure from which to dispense prescriptions like a traditional pharmacy.

 

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