Amazon – Set up for a big move higher?

Amazon (AMZN) gave a big, fat buy signal back in late January when it crossed above both the 30 week moving average and the blue downtrend resistance line as noted in my chart below. Since bouncing off the bottom (for the third time just prior to the breakout), it has risen a cool 33% in a month and has since been consolidating sideways creating a high and tight bull flag.  I view these patterns are usually ½ way markers allowing the bulls to catch their breath and unwind overbought conditions.  Which is exactly what is happening now. Also note in the bottom pane of the chart you can see the ratio of Amazon to the SP 500 has turned up from a period of deep under-performance to one of outclassing the index.

Switching to a daily chart and looking at the highlighted consolidation (flag) you can see it is currently on its 3rd touch of the upper and lower boundaries of the box. This is telling me it is not ready to break out quite yet. To be a proper flag I expect to see least 5 or 6 touches (it can be more).  An even number of touches indicates it is a reversal pattern as the flag broke out to the downside and an odd number means it is a continuation pattern breaking higher. Both indicators are set up positively as the upper RSI has unwound its overbought condition and is pointing higher while the MACD in the lower panel is above zero and has just crossed above its signal line.

It seems like AMZN is nicely setup for a move higher.  If the market pushes higher and AMZN follows suit, the target for this pattern is ~470, which is about 90 point (or 25%) higher. AMZN is one of dozens of stocks whose charts are pointing to much higher prices in our future once this consolidation period is behind us.