AMZN Stock: Locked and Loaded
In my previous report on Amazon.com, Inc. (NASDAQ:AMZN) stock, I mentioned that the trend was cracked but not broken. The reason why I felt that the trend had developed a crack was that Amazon stock sold off on a disappointing earnings report, and a key level of support was broken in the process.
Market indices have created new all-time highs, and Amazon stock has failed to follow suit; this is an example of relative weakness. If AMZN stock cannot rally when the broad market is making new-all time highs, it means that bearish headwinds are preventing an advance. There have yet to be any further bearish developments, so the crack that I have referenced has yet to develop into anything more sinister.
A new price pattern has developed, and this pattern will dictate and determine the next direction in the price of Amazon stock. The completion of this pattern will clarify whether the crack that was created will become something more sinister, or just some cosmetic damage that can be dismissed.
The following stock chart illustrates the development that caused a crack in the bullish trend of Amazon stock.
Chart courtesy of StockCharts.com
The AMZN stock chart above illustrates how the 50-day moving average has acted as a major level of support and resistance. When Amazon stock is trading above it, the trend is bullish and Amazon stock continues to make higher highs. When it is below the level, the trend is bearish and the path of least resistance is lower.
In March 2016, AMZN stock broke above the 50-day moving average and Amazon stock proceeded to trend higher. Each and every time AMZN stock hit this moving average from above, it provided price support and proved to be an opportunity to acquire or add to a position.
In October 2016, Amazon stock finally broke below this moving average after a disappointing earnings report, and it has failed to trade above it ever since. Currently, this moving average is acting like resistance and is rejecting the price from advancing beyond it. This moving average is beginning to slope downward, and this will add further pressure as resistance starts to trend downward.
If Amazon stock can regain the 50-day moving average, I will once again be bullish on this investment.
The following Amazon stock chart illustrates the pattern that has developed, which will determine where the price will go next.
Chart courtesy of StockCharts.com
The pattern I am referring to is a symmetrical triangle, and Amazon stock began creating this pattern shortly after the 50-day moving average was breached. A symmetrical triangle, by definition, 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, and a large move in the price can be expected.
A break above resistance, and Amazon stock would once again be trading above the 50-day moving average. This would bring solace to the bulls, and I would once again reinstate my bullish view.
A break below support would suggest that the bearish trend that has developed is gaining strength, and that lower AMZN stock prices should be expected.
Bottom Line on Amazon Stock
Amazon stock is trading below a key level of support and, as a result, I am reluctant to hold a bullish bias until it is once again trading above it. A new pattern has developed, and the resolution of this pattern will dictate the next direction that AMZN stock will take.