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Amazon (AMZN) - Get Free Report has come a long way since the late 1990s, when it sold books and nothing else. The tech giant is now a full-service retailer, offering everything from motorcycles to baby strollers. The transformation has been perfectly timed, aligning with a decade-long global shift toward online shopping.

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Many Wall Street analysts thought Amazon would eventually fail in the intensely competitive net sales space, but it has defied critics year after year, posting healthy revenues that show great resiliency. The company even survived last year's meltdown better than its rivals, with loyal shoppers keeping the virtual cash registers ringing throughout the crisis.

What can traders and investors expect when Amazon reports third-quarter earnings after Thursday's closing bell? To answer the question, let's back up and look at its technical positioning from all angles.

Amazon came public in May 1997 around $1.50 (post split) and immediately took off in a powerful uptrend. That rocket ride continued into 1999, when the stock topped out near $110. It then dropped into a double-top pattern that was broken to the downside when the tech bubble burst in 2000.

The subsequent decline was nasty and persistent, with the price losing over 90% of its value by late 2001, when it bottomed out at $5.51. Notably, the turnaround started a full year ahead of other tech stocks and the broad indices. This unusual strength characterized company performance during the middle of this decade, when it was a bona fide market leader.

Notice how the stock has stairstepped higher since 2001, posting higher lows in 2006 and 2008. This is a highly bullish pattern that points to an eventual breakout over the historical peak at $113. Of course, this is long-term chart, with a full month between price bars, so that big breakout might still be a long way off.

The stock posted a seven-year high at $101 in October 2007 and dropped into the seventies in a slow grind pullback. Nervous sellers took firm control after the August swing high at $92, knocking the price down to $35 in November. It finally bottomed at that level and started to head higher. Just like 2001, this recovery began well ahead of the broad market.

The bounce evolved in a V-shaped pattern that retraced nearly all of the 2008 selloff by April of this year. Momentum then slowed considerably, with the stock dropping into a rising channel pattern, as it crept toward a test of the 2007 high. It's been a tough grind for shareholders, with the price still trading under that key level six months later.

Even though Amazon carved out the 2007 high about 12 points under the 1999 high, at $113, we're essentially talking about the same resistance level. In sum, the stock has rallied into the nineties, where the price is looking for a good reason to push through that significant barrier and head into an all-time high. I expect this theme to continue well into 2010.

The stock is trading near channel resistance ahead of Thursday's report. The three points between the upper channel line and the 2007 high is a zone of conflict, which could trigger whipsaws if the stock rallies after the news. In fact, I wouldn't consider new purchases until a rally clears this zone, because it's likely to attract short sellers.

Could Thursday's news do the trick, with a buying spike into triple digits? Frankly, I see a bullish report as a first step, rather than a final victory, in the same way that


(AAPL) - Get Free Report

earnings lifted that market leader into resistance in the low $200s. In the real world, price can test these "big" levels for weeks before giving way to major breakouts.

Price action after a bad report could place current shareholders at risk, because there's little support until the 50-day moving average in the upper eighties, and the stock has a history of breaking this level during pullbacks (red circles). This "fractal behavior" suggests that a downturn will drop the price into the lower eighties, as a minimum target.

Look at the blue circles and you'll understand why this is a real possibility. Two of the last three swing highs were printed in the session just prior to, or just after, the earnings release. In other words, bears have been using the report as an excuse to sell the stock. It's obvious they'll be thinking about utilizing the same strategy on Thursday morning.

Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.

At the time of publication, Farley was held no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a private trader and publisher of

Hard Right Edge

, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of

The Daily Swing Trade

, a premium product that outlines his charts and analysis. Farley has also been featured in





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. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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