Amazon stock is rallying after announcing a stock split. Here’s how to trade it now.
Amazon (AMZN) – Get Amazon.com, Inc. Report stole the headlines — at least for a few moments — on Wednesday after the close. That came as the company announced a 20-for-1 stock split and a $10 billion buyback plan.
Given its $1.4 trillion market cap before today’s mild 5% rally though, the buyback is less of a focus vs. the stock split.
Investors have been clamoring for a stock split from Amazon for years but have strongly called for it over the last 12 months or so. Unfortunately, some are wondering if it’s too little, too late.
A year ago, the business was stagnant but the “risk-on” mindset was still going strong. A stock split from Jeff Bezos & Co. would have likely propelled the stock to new all-time highs.
Bezos doesn’t care for splits though, as we saw Amazon stock swell up toward $3,775 near its highs. When new CEO Andy Jassy took over in the summer of 2021, bulls again thought that a stock split may be on the table.
It is now, but it should have come sooner.
It’s a Different Climate for Amazon’s Stock Split
When Apple (AAPL) – Get Apple Inc. Report and Tesla (TSLA) – Get Tesla Inc Report announced their stock splits in the summer of 2020, the stocks roared higher.
In the course of 14 sessions, Tesla stock rallied more than 80% into its split date. For Apple’s part, the stock rallied more than 34% from the announcement to the actual split date.
Now though, we’re in a different climate. In the summer of 2020, bulls were in control of the market, momentum was pointed to the upside and it was a major “risk on” environment.
2022 is not the same climate — at all. It’s very much a “risk-off” environment at the moment, as volatility is high and there are multiple headwinds plaguing the market, particularly the Nasdaq.
Earlier this year, Alphabet (GOOGL) – Get Alphabet Inc. Class A Report (GOOG) – Get Alphabet Inc. Class C Report announced a 20-for-1 stock split. In combination with a strong quarterly report, the news was enough to send the stock higher by 10.1% to all-time highs.
However, the stock could not hold those gains for long. Just five days after reporting earnings and announcing the stock split, Alphabet stock was lower than it was before the news.
In other words, the climate has changed. While stock splits do not make the business any more valuable, it does tend to increase demand for the stock and in a supply/demand driven market, that’s important.
In this environment though, demand for stocks is down and unless equity markets fetch a big bid from here and demand increases, Amazon stock may continue to struggle despite the good news.
Trading Amazon Stock
Daily chart of Amazon stock.
Chart courtesy of TrendSpier.com
On Tuesday, Amazon stock broke the prior 2021 low from January near $2,707. However, the stock was able to close above this mark, technically giving traders a bullish reversal to work with.
Despite the strength of the overall market on Wednesday — with the S&P 500 and Nasdaq rallying 2.6% and 3.6%, respectively — Amazon garnered a gain of just 2.4%.
Yet it left the Amazon trade intact on the long side, at least for a continued bounce.
With today’s news, it’s propelling shares back above the key $2,880 area, as well as the 10-day moving average. I consider these two levels critical.
The 10-day moving average marks the short-term trend and clearing this mark gives hope that Amazon stock can reverse the current downtrend. The $2,880 area was former support turned resistance.
Now back above it, the hope is that this level can return to support.
To lose both the 10-day and $2,880 opens up Amazon stock for a possible gap-fill back down to $2,805.
Don’t think it will happen? It might not, but just look at Alphabet stock. Despite the recent two-day gain, shares are still down almost 5% from the pre-earnings closing price — the same earnings date that the company announced its stock split.
Below $2,800 puts the $2,707 area back in play.
If Amazon gets going on the upside, $3,000 to $3,070 is a big area for it to clear. Admittedly, that’s a wide range, but it’s where the 10-week, 21-day and 50-day moving averages come into play, along with the daily VWAP measure.
Above that puts $3,185 on the table.
