On Mar. 9, after e-tail behemoth Amazon (NASDAQ:AMZN) announced it was planning a 20-for-1 stock split and a $10 billion share buyback, shares surged over 5% that day. Though the split won't come into effect till early June, the stock has jumped nearly 25% since then, climbing from $2,720 ahead of the announcement to $3,386.30 as of Tuesday's close.
Investors like stock splits, especially for shares with lofty pricing. Splits generally increase the level of demand for a stock—both ahead of the split and afterward, when shares become more affordable, enabling retail investors to gain easier, cheaper access to formerly costly shares.
So, after the recent boost, is it too late to join the rally? Has all the good news already been priced in?
That could depend on your timeframe and level of risk aversion. Here's how it breaks down via the technicals:
Via the daily chart, it appears the stock completed a double bottom and surpassed its 200 DMA, increasing the likelihood of a sustainable reversal. However, the ROC, a more sensitive momentum indicator than the more popular RSI, provided a bearish signal, having established a short-term downtrend. This triggered a negative divergence in the still-rising prices.
The weekly chart shows that the double bottom may be nothing more than a right shoulder of a complex H&S top, which looks significant.
What's an investor to do then? And which chart should they follow? That depends on one's tolerance.
Even if the weekly chart has the final say and shares begin moving lower, there can still be some upside ahead in the short-term via the pattern on the daily chart.
Below, potential plays for various levels of risk tolerance:
Trading Strategies
Conservative traders should wait for higher weekly highs or a completed H&S top.
Moderate traders could risk a buy if the price returns to the neckline of the double bottom and bounces off it, demonstrating ongoing support.
Aggressive traders would enter a long position upon a return move, i.e., a buying dip.
Trade Sample – Aggressive Long Position
- Entry: $3,300
- Stop-Loss: $3,275
- Risk: $25
- Target: $3,400
- Reward: $100
- Risk-Reward Ratio: 1:4
Author's Note: The above is a sample, not the full analysis. For that, you must read the actual article. The model is generic to show what goes into a basic plan. Ultimately, each trader must develop their own plan to incorporate timing, budget and risk tolerance. Until you learn to do so, feel free to use ours, but for learning purposes only and not for profit. Otherwise, you'll end up with neither. And that's guaranteed with no money back.