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Key Points |
Amazon shares are up 8% this month and 40% since April as the rally continues to embed itself for the long run. A fresh tightening pennant pattern has recently emerged, which suggests a decisive move is coming. All things considered, there's every reason to think this move will be to the upside.
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Tech titan Amazon.com Inc (NASDAQ: AMZN) closed just under $230 on Tuesday evening, extending an 8% gain since the first week of August. The broader uptrend since April remains firmly intact, with shares up more than 40% in that stretch. |
Yet what has caught chart-watchers' attention this week is a technical pattern that should be on every Amazon investor's radar—the pennant. |
Let's jump in and see why these can be so important, and highlight some ways investors can think about playing it with Amazon. |
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A Technical Setup Worth Watching |
A pennant forms when a stock consolidates in a narrowing range following a sharp move, with lower highs and higher lows gradually converging into the corner of a triangle. It suggests a temporary lack of outright control between buyers and sellers, with each side playing it safe until there's a clear move in one direction. |
For those of us on the sidelines, it's worth noting that professional traders pay close attention to pennants because they often precede powerful breakouts. Tesla Inc.'s (NASDAQ: TSLA) chart provided a recent example, breaking out of a similar setup two weeks ago and rallying on from there. |
Amazon has been logging lower highs since the end of July and higher lows since the start of August. This tug-of-war has produced a clean pennant pattern on the chart, with shares currently testing the upper band. |
A breakout could come at any time, though it wouldn't be surprising if the stock bounces around within the tightening range for a couple more sessions until the pressure becomes unsustainable. |
Strong Fundamentals Support a Rally |
The key question is whether the breakout, when it comes, will be to the upside or downside. |
All things considered, the odds favor the former. Amazon's fundamentals remain strong, and its earnings reports have consistently topped expectations this year. |
The company has delivered across cloud, retail, and advertising, giving investors multiple growth engines to lean on. |
Wall Street is equally supportive. Analysts have consistently rated it a Buy all year, with some of the more recently refreshed price targets from earlier this month ranging up to $300. |
Tuesday's close near $230 implies a solid targeted upside of around 30%, bolstering the argument that any breakout from this pennant should be to the upside. |
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Positioning for the Next Leg Higher |
The strategy is straightforward for investors with a long-term bullish view of Amazon. Building an initial position now, while the stock consolidates ahead of a clear move, makes sense—especially given the broader uptrend and supportive macro environment. |
Adding to that position once the breakout occurs allows you to take on additional exposure more confidently. |
For those who prefer to wait, the signal to watch for is a decisive green candle breaking through the descending upper line of the pennant on strong volume, followed by the stock holding those gains into the close. That combination would confirm that the consolidation phase is over and the next leg higher is underway. |
Support, Resistance, and Breakout Potential |
Conversely, a plunge through the rising lower line of the pennant would be a red flag. It would suggest that sellers have taken back control, raising the risk of a deeper pullback. |
Current support sits around $220, and a sustained break below that would force investors to reassess. |
With equities broadly in rally mode and risk-on sentiment dominating, a downside break looks less likely. |
The initial upside target on a breakout would be $235, where shares topped out in late July. Beyond that, February's high of around $240 comes into play. |
If those levels are cleared, momentum should carry the stock into blue sky territory, especially with analysts already pointing to $300 as a medium-term destination. |
Written by Sam Quirke |
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