Amazon stock is flying above the (technical) clouds.
Shares of the e-commerce giant are trending above a stock trend indicator called the Ichimoku Cloud, which one expert says forecasts potential long-term bullishness for Amazon stock.
"It's just a good reminder in this situation that Amazon is in a long term uptrend," Katie Stockton, founder and managing partner of Fairlead Strategies, told Investor's Business Daily's "Investing with IBD" podcast. She points to Amazon stock's price remaining consistently higher than the levels laid out in the indicator, a pattern that has continued since last summer.
The Ichimoku Cloud is a technical indicator of five lines overlaid on a stock chart. It indicates a stock's momentum and where it's trending alongside its support and resistance levels. The idea behind it is to create an at-a-glance method of assessing a stock. The Ichimoku Cloud's most distinguishing feature is the shaded area between the Leading Span A and Leading Span B lines, forming the indicator's "cloud."
Stock prices above the cloud indicate a bullish trend. Prices below the cloud indicate a bearish trend.
Audio Version Of Podcast Episode
For Amazon stock, prices have remained firmly above the cloud, confirming an uptrend. The megacap stock holds a Composite Rating of 93 and is currently ranked No. 2 in the Retail-Internet group according to IBD Research.
Amazon continues to lean into its strengths in cloud computing and remains among the world's most valuable companies. Its advertising unit is helping the e-commerce giant boost margins.
Amazon Stock Flashing A Caution Light
However, despite the positive trends, Amazon stock is still flashing a caution light.
The stock recently has seen weakened momentum since April, according to another technical indicator, the moving average convergence/divergence indicator (MACD). Then there is also a long-term resistance level near 189 that it's approaching.
"People are stepping in and selling Amazon at that level," Stockton said. "We don't know why, but it's good information to have."
If Amazon stock clears that level, it could indicate a breakout and a bullish development, particularly if it holds at those breakout levels for a week or two, she said.
Amazon's outsize weight in the market means risk should be managed, whether in a larger market portfolio perspective or through an options strategy or shorter-term corrective phase, Stockton added.
"For right now, the message would be not to sell short Amazon, but to hold off on new purchases," she said.
Watch this week's podcast featuring Katie Stockton to learn more about technical indicators.
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