AMZN Stock: Bracing for Impact
Amazon.com, Inc. (NASDAQ:AMZN) reported earnings after the close on February 2, 2017, and even though it managed to beat on the bottom line, it fell short on the top line. Revenues fell short of expectations, and this bearish news was compounded when it announced that revenue for the next quarter is going to come in lighter than it previously expected. Investors showed their discontent with the disappointing earnings report by sending Amazon stock tumbling lower by $34.85 to $805.10 in after-hours trading.
This selling pressure will undoubtedly spill into Friday’s trading action, with the potential to damage the stock chart, and the overall trend in Amazon stock. This damage is predicated on the notion that Amazon stock falls below key technical levels that have supported the price of AMZN stock as it appreciated from $284.00 to where is currently sits at just above $800.00.
The following Amazon stock chart illustrates these key technical levels that have supported the price of AMZN stock.
Chart courtesy of StockCharts.com
The AMZN stock chart above illustrates that there are two distinct technical levels that have supported this stellar bull market advance.
The first level of support is defined using the 200-day moving average. This moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. The distinction between the two is easy to discern: when Amazon stock is trading above the moving average, it is bullish, and when it is trading below it, it is bearish.
This moving average is watched by many traders, and as a result, in bull markets, it is not uncommon for this moving average to provide price support when it is being tested from above.
The second level of support is defined using a simple uptrend line. This line is created by connecting the troughs on the AMZN stock chart. This trend line has supported the bullish advance in AMZN stock, since this move began to accelerate in January 2015.
As long as Amazon stock remains above this trend line, I can only assume that the bull market on AMZN stock is still intact and higher prices are set to prevail. Falling below this trend line would indicate that the advance has concluded and a larger correction is set to ensue.
The 200-day moving average currently sits at $757.94, and the uptrend line coincides at that exact level. This suggests that support is strong at this level.
The following Amazon stock chart illustrates a third level of price support that coincides with the previous two.
Chart courtesy of StockCharts.com
The third level of price support is found by examining a pattern that indicated a bullish advance was going to commence in early January.
This pattern was created, and after a disappointing earnings report in October 2016, sent AMZN stock tumbling lower. In later weeks, a distinct level of resistance was created by connecting the peaks on the price chart. In early January, the price closed above resistance, indicating that a bullish advance was set to commence, and shares rallied higher, stalling at the previous all-time high prior to earnings.
It is not uncommon for price to return to a previous level of resistance and test it from above, reaffirming that the breakout was indeed legitimate. This level of support sits at approximately $765.00, which is in line with the first two levels of price support.
Bottom Line on Amazon Stock
Amazon’s current earnings report has fallen short of expectations, and as a result, a barrage of selling is expected to put pressure on AMZN stock. The bull market in Amazon stock is predicated on its ability to remain above key levels of support. These three key levels of price support currently coincide around one price, which suggests that support is strong at this level. As long as AMZN stock remains above this level, the bull market is intact and the current sell-off is nothing more than a correction in a bull market. Failing to hold these levels would suggest a larger deeper correction is set to ensue.