Amazon.com, Inc.: AMZN Stock Chart Is Reason for Concern

Amzn StockAMZN Stock: Critical Support

I have been watching the Amazon.com, Inc. (NASDAQ:AMZN) stock chart with a keen eye for some time now. I was bullish on this investment for quite a while, but then, in late October, Amazon stock sold off after a poor earnings announcement. The resulting sell-off did some technical damage to the price chart, and AMZN stock has failed to gain traction since.

I use technical analysis (TA) as the basis of my investment analysis. TA uses past volume and data to discern trends and forecast future prices. When I say that Amazon stock did some technical damage, I am referring to the trend and the bullish signals that supported it.

In my last report on AMZN stock, I mentioned that the price action was causing cracks and stress fractures in the overall bullish trend. One pattern in particular had developed, and the resolution of this pattern would dictate where the price of AMZN stock would go next.

The following Amazon stock chart illustrates this pattern.

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Chart courtesy of StockCharts.com

The pattern on the above chart is a symmetrical triangle, and Amazon stock began creating this pattern shortly after the earnings announcement that failed to impress investors in late October. A symmetrical triangle is a consolidation pattern that contains two converging trend lines. One line represents resistance and the other represents support.

As the pattern progresses and the price bounces off support and resistance, momentum is being stored. When this pattern is finally completed and the price breaks above resistance or below support, the stored momentum will finally be released. This is why triangle patterns are particularly explosive.

Amazon stock has now broken below the support outlined by this pattern, which suggests that lower prices are set to prevail.

There is a major level of support just below current price levels, and it is imperative that AMZN stock hold this level of support, or else it will put the entire bullish trend in jeopardy.

The following AMZN stock chart illustrates the major level of support.

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Chart courtesy of StockCharts.com

The Amazon stock chart above illustrates two levels of support that currently coincide around one price, and it also illustrates where the moving averages first suggested that the bullish trend was weakening.

I will begin with the 50-day simple moving average because the price action surrounding this moving average is what first signaled that a change in the trend had begun.

In late October, after a poor earnings announcement, the price gapped below this moving average. Instead of acting as a level of support, as it has in the prior eight months, it has recently been acting as a level of resistance. Any attempts to break above that level of resistance have been thwarted.

I had mentioned in my previous report on Amazon.com that in order to reinstate my bullish view on AMZN stock, the price would need to regain its stance above the 50-day simple moving average.

The triangle pattern that is now suggesting lower prices was created below this 50-day moving average, and key levels of support are now set to be tested.
The 200-day simple moving average is the dividing line between stocks trading within a bullish trend and stocks trading within a bearish trend. The uptrend line defines the bullish trend by connecting the troughs on the price chart.

The 200-day simple moving average and an uptrend line currently coincide around one price, which is currently $734.00. It is imperative that Amazon stock remains above this price, or else the price action would be suggesting that a larger bearish trend is beginning to form.

I now expect the price support to be tested. Two consecutive closes below this level would confirm that the bullish trend in AMZN stock has been broken.

Bottom Line on Amazon stock

The bullish trend in Amazon stock is damaged, but still intact. A major level of support is set to be tested, and the outcome will dictate whether the bull market in AMZN stock will continue.