Is Amazon (NASDAQ:AMZN) stock on the cusp of a breakout, or just a fake out? It’s been rough going for Amazon’s loyal investors during the past year. However, the story of 2023 is still unfolding, and there are valid reasons to stay in the trade with Amazon.
Not long ago, InvestorPlace contributor Bret Kenwell suggested that the Amazon share price is about to move higher. Kenwell has been spot-on on more than one occasion, so I delved into his bullish thesis to see if it holds water.
As usual, Kenwell served up a compelling mix of technicals and fundamentals in his argument. So, let’s explore his bull case for this e-commerce giant and determine whether AMZN stock is, indeed, “teetering on a breakout.”
Federal Reserve Gave the All-Clear to Buy AMZN Stock
On March 22, Kenwell indicated that the next move in the Amazon share price is one that the “Federal Reserve’s rate decision may influence.” I concur with this completely. However, I have the advantage of hindsight that Kenwell didn’t have at that time.
One of the main reasons AMZN stock declined sharply last year was the impact of the Federal Reserve’s interest rate hikes. People and businesses often weren’t in the mood to make online purchases. They were concerned that the Fed may continue tightening monetary policy until the U.S. enters into a deep recession.
Kenwell added, “If the Fed sparks a continued rally in tech stocks, Amazon stock will likely break out.” A rally in the Nasdaq, which is filled with tech/growth stocks, has already commenced since the March 22 Fed meeting.
The Federal Open Market Committee’s (FOMC) “dot plot” indicates that there will probably be only one more interest rate hike this year. Plus, it will likely be just 25 basis points (bps). This is effectively an all-clear signal to invest in a growth-y, tech-y, mega-cap company like Amazon.
Amazon’s Balance Sheet Is Fairly Solid
Kenwell’s next point concerned Amazon’s financials. He observed that some investors are turning to “companies with strong balance sheets.” These companies “have been acting as safe-haven assets for investors looking to flee other equities amid the regional banking crisis.”
It’s amazing to consider that tech stocks would be safe havens and bank stocks would be considered risky. But then, plenty of longstanding rules on Wall Street are being promptly upended in 2023.
In any case, Kenwell’s point is duly noted. He sees the “$100 to $102 area” as a battle zone for AMZN stock; if it breaks above that price with conviction, $120 shouldn’t be difficult to achieve this year.
If the company’s balance sheet is a deciding factor, then Amazon seems to pass the test. At the end of 2022, Amazon had $462.68 billion in total assets and $316.63 billion in total liabilities. And, that was at the end of a tough year for the U.S. economy.
Furthermore, Amazon boosted its position of cash and cash equivalents to $53.89 billion at the end of 2022. That’s quite an improvement compared to $36.22 billion at the end of 2021. Again, Amazon achieved this while the economy, and especially the tech sector, seemed to be melting down.
Consider AMZN Stock at $100 for a Move to $120
All in all, I agree with Kenwell that AMZN stock is about to break out. The $100 level has psychological significance. Breaking through it with heavy buying volume should lead to further upside for Amazon shares.
The next battle zone will likely be $120. After that, it’s blue skies above as Amazon’s firm financials and the Fed’s green light lay the foundation for an unassailable bull case.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.