How to Trade Amazon Stock at All-Time Highs

Can shares of Amazon (AMZN) - Get Report really his $1,000?

Carlos Kirjner, analyst at Sanford Bernstein, believes they can. On Tuesday, Kirjner hiked his price target on Amazon stock from $770 to $1,000 per share. At current levels, Kirjner thinks Amazon stock can deliver an additional premium of 42% from current levels. But it won't be a straight shot.

Amazon stock closed Tuesday at $703.07, up 3.43%. The shares have been on an incredible run, surging some 43% over the past three months. Based on Tuesday's closing price, Amazon stock has now skyrocketed 70% above its 52-week low of $414.55, reached in May 2015. Even with that strong rise, the stock is up just 4% year to date, compared with a 2% rise in the S&P 500 (SPX) index.

But don't confuse that with a buying opportunity.

As has been the case with other momentum stocks, Amazon shares were making up for lost ground. And from a technical perspective, the stock looks like it is setting up for a slight pullback to around $635, or a 10% decline, before it moves higher. Take a look at the chart below, courtesy of TradingView.

By looking at the solid orange line, you can see that Amazon stock, despite its bullish run, has only been making up for its February low of $474. The shares are still less than 1% above their December high. Given that Amazon stock is back to where it was five months ago, Kirjner's price target makes sense. But investors might be unaware of the December connection, and could feel compelled to take profits. Then Amazon stock will become a strong buy again, but not at these levels.

Amazon's key moving averages are now significantly below where the stock trades today. Amazon shares are poised for a 10% decline to around $635 (solid blue arrow) near the stock's 20-day moving average of $643.11. Why $635? It's the center point of the 10% gap the stock created on April 28, following the company's blowout first-quarter earnings.

How to execute the trade: Sell the shares short at market open Wednesday at $703 to $705, using $710 as near-term resistance. If the stock breaks $710, take the loss and live to play again. The bet is that the stock falls to its 20-day average of $643, creating additional pressure to fill the 10% gap. The gap could also be filled half-way, to around $635, yielding a 10% gain.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.