AMZN Stock: Testing Support
It is time once again to take a look at Amazon.com, Inc. (NASDAQ:AMZN) stock to see what the indications on the company’s stock chart are suggesting.
The target I outlined in my last publication about this company, “The Next Stop for Amazon Stock Is $1000,” has come to fruition as AMZN stock just attained this level on June 2. The magnitude of that publication is multiplied by the fact that this price target was derived in February 2017, when Amazon shares were trading at $842.70.
My bullish view and that price target on Amazon stock were generated by analyzing indications and price patterns that had been lifted off the company’s stock chart. For those not aware, this method of investment analysis is called technical analysis, and it is based on the notion that historical data can be used as a looking glass into the future. I have spent nearly two decades studying and applying this method of analysis to my trading strategies.
The event that spurred this publication is the attainment of the target I set out, and the fact that a market sell-off has gripped the NASDAQ index. In this low-volatility environment, such a move, especially to the downside, has been far and few between. This downdraft has caused AMZN stock to take a few steps back from its highs, and it is now testing a very important level of price support. In order to maintain its bullish posture, Amazon needs to remain above this important level of price support.
The following Amazon stock chart illustrates the indications that have been supporting the advance in this investment.
Chart courtesy of StockCharts.com
There are two distinct indications that are highlighted on the chart above that are both acting as a level of price support.
The first indication is an uptrend line, and this technical tool is created by drawing a trend line that connects the significant lows that occurred over this time frame. This simple tool effectively defined the trend that has been in force since early 2015. This trend that has been dominated by higher highs and higher lows creates the quintessential stock chart we have all come know. A chart that begins in the lower left and travels to the upper right.
The uptrend line has been acting as a level of price support, and this aspect has been especially true since late last year where this trend line was tested on numerous occasions. On each of these occasions, buyers were eager to step in and support this trend line. As long as the share price is trading above this technical tool, I will have all the reason to believe that the bullish trend is set to continue.
This simple tool can also be used to define the risk in this investment. If the share price should ever close below this uptrend line, I will have all the reason I need to believe that a larger correction is set to ensue, which would warrant exiting a long position or establishing a short position.
The second indication is the 50-day moving average. This tool is created by averaging the daily closing price over the past 50 trading days, and plotting this value on the stock chart. The 50-day moving average is used to gauge the health of an investment by pinpointing where it is trading in relation to this moving average. Trading above the 50-day moving average suggests the trend is healthy and accelerating. An accelerated trend is a characteristic of an investment that is being accumulated by investors.
2017 has been characterized with consistent trading action above the 50-day moving average. Any time this moving average was tested, investors were eager to step in to support this metric.
In actuality, the 50-day moving average and the uptrend line have been on the same plane for the duration of this year, and therefore both levels of support were being tested every time there was a pullback in AMZN stock. This is a great example illustrating the significance of a support level when two metrics are supporting one price point.
The current sell-off that gripped the market last week caused Amazon stock to shed some value. The $1,000 mark it worked so hard to achieve, it was not able to sustain. The stock price has pulled back, and characteristically AMZN stock has found support exactly where it was expected, on the uptrend line that just so happens to coincide with the 50-day moving average. As long as the share price remains above these levels of price support, I can confidently say that Amazon stock will make another attempt at the $1,000 level.
Bottom Line on Amazon Stock
A sell-off gripped the markets last week and it has sent the technology stocks tumbling. Amazon stock was unable to sustain its closing price above the $1,000 mark, but it did find price support exactly where it was expected to. As long as the stock price remains above price support, I can only assume that AMZN stock will take another attempt at the four-digit marker.