Hi Traders,

Amazon spent Tuesday and Wednesday running Prime Big Deal Days, its big fall sale, and I’ll admit I did some shopping. Most of my attention went to the stock chart, though. Amazon’s been building a pattern I trust, and it’s sitting right under the price that sets it off.

On the other side, I’ve got a stock most people would never think to short. It’s one of the best-run industrial companies in the country, and Wall Street still loves it. The chart doesn’t, and the company reports earnings in less than two weeks.

Amazon (AMZN) has started a nice rally, and I think it keeps going once it clears $259.70.

Check it out on the chart:

It bounced off the $244.30 level, put in a double bottom, and it’s now trading back up to its most recent highs. Those highs could act as a little resistance. Once you see it trade over that level consistently, hop into those cheap calls. My first price target is $266.44, then $272.71. Use a close back below $244 as your stop loss.

The Relative Strength Index (RSI) is bullish, and the MACD histogram is just about ready to cross above zero, which is bullish too.

I like having the business behind the chart on this one. AWS grew 37% last quarter to $42.2 billion, its fastest pace in 18 quarters, and Amazon says its cloud backlog stands at $496 billion. The stock ran to a record near $285 in early August on that report and then drifted all the way back into the low $250s by the start of this week. The company didn’t put out any bad news to cause that slide. TD Cowen reiterated its Buy rating on Monday, and the average analyst target sits around $335. I’ll take a double bottom with that kind of backdrop every time.

The stock for puts right now is GE Aerospace (GE):

It’s in a major league downtrend with more to go, and it’s breaking below the low it set on September 15. My price target is $281.31. The RSI and MACD are both bearish. Use a close back above $306.80 as your stop loss, and be sure you’re out before the earnings report on October 20.

GE makes jet engines, and the money comes from servicing them for decades after they’re sold. On September 14, Melius Research downgraded the stock to Hold and cut its target from $432 to $350. Their worry was that aftermarket growth, the part of the business everyone pays up for, could slow to the high single digits next year. Wells Fargo trimmed its target at the end of the month too.

The stock’s own track record bothers me more than the downgrade. GE beat estimates in January, April and July, and it sold off after all three reports. It’s now trading near $303, more than $80 off its August 6 record of $388.84 and below both its 50-day and 200-day moving averages. When a stock can’t hold up on good news, I’m happy to be on the short side of it.

I’m out before October 20 because an earnings gap can blow right through a stop in either direction, and I don’t want that risk on a put.

Here’s how I’m running both of these. I won’t touch the Amazon calls until the stock proves it can hold above $259.70. If GE closes back over $306.80, I’m wrong and I’m out. I’ll be watching both of them closely into GE’s report on the 20th.

Trade Accordingly,

Licia Leslie