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Amazon is Setting Up for a Breakout

The stock has been quiet lately, but that may be about to change.
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While stocks like Tesla (TSLA) and Apple (AAPL) have been stealing the headlines, especially ones dealing with stock splits, shares of Amazon (AMZN) have been quiet lately. 

In fact, in the period from July 20th through August 20th, Amazon gained less than 3%. During that time, the world's largest online retailer, in green, has slightly under-performed the market, represented here by the S&P 500 in blue. 

S&P 500 vs Amazon. Chart by TradeStation

S&P 500 vs Amazon. Chart by TradeStation

While Amazon has been quiet lately, that may be about to change. Over the past two months, Amazon has formed an ascending triangle pattern, represented by the black dotted lines on the chart. 

This bullish pattern is occurring within a long-term uptrend, and during a bullish market cycle. Based on this information, I'm giving Amazon a price target of $3600 per share.  

Amazon chart by TradeStation

Amazon chart by TradeStation

Notice how this stock has been trading on low volume recently, in the area shaded yellow. While low volume is generally perceived as a negative, this is actually a good sign during the consolidation phase of a rally. 

The ideal scenario would see Amazon breaking out with authority on high volume above the upper dotted line. For this breakout to be legit, Amazon needs to close above $3344 per share. That's the stock's all time intraday high, set on July 13th. 

Amazon reported second quarter earnings in late July. The online retail giant reported $88.9 billion in second quarter revenue, beating analysts' estimates by nearly 10%. Amazon also raised its revenue guidance for the third quarter to between $87 billion and $93 billion.

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.