Take Profits On This Stock Now

Shares of Amazon.com, Inc. (NASDAQ:AMZN) fell a little more than 1% on Thursday as shares became overheated in the near-term. While I still love Amazon, as well as the longer-term prospects for AMZN stock, the question right now is what’s next in the short-term?

Specifically: Is this two-day bearish reversal merely a pause before Amazon’s next push higher toward $1,000, or is a better mean-reversion move to the downside in the cards?

So you know, Amazon.com is scheduled to report its next batch of earnings in a little less than three weeks from today, on April 27.

As I always say, from a swing trading perspective, reducing or entirely closing stock positions into their earnings reports helps you avoid making a bet on what’s ultimately a binary income.

If and when the stock in question sets up for a new trade after earnings, all the better.

When I last discussed AMZN stock on March 23, I said that shares appeared to be coiling up for a breakout move to the upside in the near future.

Four days later, the breakout occurred. The first upside price target of $880 was reached two days after that.

Amazon shares continued the rally all the way toward $923 this Wednesday before getting exhausting.

AMZN Stock Charts
On the multiyear weekly chart, we see that as a result of the most recent breakout rally, Amazon has once again reached the upper end of the multiyear rising wedge formation.

Like I always way, on its own, this is no reason to become bearish on a stock. However, it is good risk management to take profits along the way at such junctures.

Yesterday, I said the Nasdaq-100 — as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) — is beginning to look stretched on the upside. It too is reaching the upper end of its trending channel.

Considering that AMZN stock is a good-sized part of the QQQ, this coinciding of both vehicles at the upper end of their trends should be respected.

On the daily chart, we see Amazon’s breakout over the past week-and-a-half more clearly.

Note that as a result, the stock is once again overextended above its 21-day simple moving average (yellow) and the MACD momentum oscillator is signalling overbought.

On Wednesday, Amazon stock closed well off its intraday highs as the broader market reversed lower. This was followed on Thursday by what I refer to as a follow-through selling day. My proprietary B2 Reversal Indicator flashed a near-term sell signal in AMZN on Thursday, too.

Active traders could look to play the stock to the downside for a mean-reversion move toward a first downside target near $870-$880. More patient traders may consider taking full or partial profits in AMZN stock and buy again at the next bullish reversal.

— Serge Berger

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Source: Investor Place