This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Time To Buy Apple, Amazon

Stocks in this article: AMZNAAPL

NEW YORK ( TheStreet) - Amazon's (AMZN) growth and valuation have provided much fodder for debate: Bears argue the valuation is unfathomable, while bulls talk about the bright future and continue to push the stock higher and higher.

Personally, I see both sides. The stock price continues to go higher, even though profits continue to flatline. But, hey, that's the trend. Why short into that? I never understood that. The bearish rationale makes sense, and I can see why someone wouldn't buy the stock. But shorting it -- at least over a long period of time -- seems to be equivalent of stepping in front of a train.

But the stock could be an excellent buy rnow, after it finally broke out of its short-term downward channel. As you can see on the image below, the stock was already favoring the downside going into earnings.

Chart Courtesy of StockCharts.com

Although the results weren't flattering, the stock still popped, hitting a 52-week high of $313.62. The stock had already begun to trend lower, and following the earnings jump, it continued to slide, stuttering against the upper resistance line until finding support near $283.

The $283 to $285 level acted as decent resistance back in June, when Amazon was trying to go higher. As if it were taken from a technical analysis textbook, the stock recently found support near its old resistance levels and has started to move higher.

Last Thursday, Amazon ripped higher and was able to break out from the downward channel and moved slightly higher on Friday, as well, ending the week at $290.01. That bodes well for the stock, and if it can garner some upward momentum, bulls should be pleasantly surprised.

Meanwhile, Apple (AAPL) has been making all sorts of headlines as of late. The stock has been the talk of Wall Street for years now, but over the past six months or so, it's been for all the wrong reasons.

After topping out at $705.07 in September 2012, the stock has been nothing but trouble for the bulls. It trended sharply lower heading into 2013 and didn't stop there, finally bottoming near $380 in April. Since then, however, the stock has been doing a lot of repairs on the technical side of things. Allow me to explain, following the chart.

Chart Courtesy of StockCharts.com

The chart was a technical nightmare for bulls and a dream come true for bears. The pink line represents the downward trend the stock followed since topping out in September. However, in the beginning of May, that trend flipped from resistance, to support -- much like the Amazon situation we just talked about.

Moving along, the thick blue lines on the top and bottom represent the longer-term channel for the stock, with a double bottom forming near $380. That is a good sign for bulls.

In between the thick blue lines are two thinner blue lines, representing a shorter-term channel. In mid-August, the stock was finally able to close above the shorter-term resistance. After the Carl Icahn announcement via Twitter, the stock ripped through its 200-day moving average -- another bullish sign -- and was also able to push through the top channel of resistance near $500.

While the stock became overbought in the short term, it only seems to be consolidating at this point. The stock will continue higher -- barring a market collapse -- after taking a much needed pause.

Also, on a historical note, the stock rarely sells off or stays flat going into the company's new product announcements. Usually, it's more of a "buy the rumor, sell the news" action, meaning traders and investors buy ahead of the event. The company is expected to unveil its new iPhone -- and perhaps even more - on Sept. 10.

This year, the strategy in equities has been to "buy-the-dip." With some noticeable obstacles in front of us, however, I can see why bulls are hesitant to hit the buy button. Until the trend turns, though, I'm going to stick with what's working.

Amazon is a high-beta stock and the sentiment for Apple has shifted as of late. I'm looking for Amazon to get to $305 and for Apple to reach the $540 level, if the current $500 level can hold as support.

At the time of publication, the author was long Apple and Amazon.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs