Amazon’s Chart Forms a Troubling Triple Top: Time for Caution?

Key Points

• Amazon is trading just below record highs, but its chart is forming a potential triple top.
• A breakout above $240 is critical for the bulls, while failure to do so could embolden the bears.
• However, strong AI investments, ongoing AWS growth, and bullish analyst stances suggest that its upward momentum is intact.

Tech giant Amazon.com Inc NASDAQ: AMZN closed around the $238 level on Tuesday, leaving it less than $5 shy of February’s all-time high. It’s been a strong couple of weeks for the stock, which had to deal with a post-earnings hangover at the start of August.

Investors were quick to buy into that; however, with shares just now just below the $240 mark once again, they’re right to be nervous. 

That’s because this is the third time in this year alone that Amazon has pressed up against that level. It’s where shares topped out in both February and July. Without a decisive breakout beyond $240 soon, the chart risks forming a triple top, a bearish technical pattern that signals upward momentum is fading.

For a stock that has gained nearly 50% since April, the stakes couldn’t really be higher.

Let’s jump in and see just how worried investors should be.

Why a Triple Top Matters

For starters, it’s worth noting that a triple top occurs when a stock tests the same resistance level three times but fails to break through. It’s often seen as a sign that buyers are exhausted and unable to maintain the momentum, while the sellers are waiting in the wings.

Given this is the third time Amazon is knocking on the door of $240, that level is at risk of becoming the kind of boogeyman that bears love. 

If resistance holds once again, they’ll feel that the rally is running out of gas, with a move lower likely sending the stock back toward support around $220 or even $210. To avoid this, Amazon’s bulls need to deliver a clean, high-volume move through $240, followed by a run of closes above that.

That would invalidate the bearish setup, confirm that demand is strong enough to drive the next leg higher, and remove the risk of a triple top being formed.

The good news for them is that there are plenty of reasons to think this is exactly what’s going to happen.

AI Remains Core to the Growth Story

It’s no secret that Amazon has been delivering consistent revenue growth across its core businesses, with AWS remaining the standout. Cloud continues to be the backbone of Amazon’s profits, and the company is doubling down by investing heavily in artificial intelligence (AI) infrastructure.

Those investments are weighing on free cash flow in the short term, but the longer-term payoff is expected to be substantial. The team over at Wedbush leaned into this recently with a report that named Amazon one of its top AI stocks to own into year-end.

Amazon is clearly positioning itself as a key enabler of the AI boom, while the associated expenditure is raising a few eyebrows, for investors with a long-term horizon, the tradeoff is attractive.

Analysts Remain Bullish

In addition, Wall Street has been mostly consistent in its support.

For example, just this week, Cantor Fitzgerald reiterated their Overweight rating on Amazon stock and its $280 price target.

Tuesday’s close points to a targeted upside of nearly 20%.

If Amazon shares were to hit that in the coming weeks, the triple top threat would have been completely removed.

Analysts and investors alike are particularly excited about the ongoing strength in AWS and momentum from Amazon’s Project Kuiper satellite initiative, and see these as drivers that should fuel growth well into the next decade.

How Investors Can Play It

The setup leaves two clear approaches for investors keen to get involved. Those confident that Amazon will finally clear $240 may want to start building or adding to positions now, anticipating the current test will result in a breakout. 

More cautious investors can afford to wait for confirmation, and instead wait for a sustained move above $240 to give reassurance that the triple top risk has been neutralized. For those on the sidelines, that may be the safer way to gain exposure without risking a near-term pullback.

Seeing the stock edge towards $240 for the third time this year might make for uncomfortable viewing, but the balance of probabilities still favors the bulls. If the breakout comes, it could be the catalyst that keeps Amazon in blue-sky territory through the rest of the year.