3 Big Stock Charts for Friday: EFX, MAT, KMB >>> READ MORE

Trade of the Day: Trap Door About to Open Under AMZN Stock?

A break below important support could result in a mean-reversion move lower

By Serge Berger, InvestorPlace Contributor


Amazon.com, Inc. (AMZN) — Shares of this online retailing giant were up as much as 87% at their year-to-date high in late July as fund managers and traders were forced to chase after the few believable single-stock growth stories out there.

But the most recent rally in AMZN stock, which came after the company’s better-than-expected earnings report, looks to have exhausted the bulls and could now offer active investors and traders a short-side trade to profit from a mean-reversion move to the downside.

On July 23, the company reported 20% year-over-year quarterly revenue growth despite headwinds from a strong U.S. dollar, along with a surprise profit of $0.19 per share. The bulls took AMZN stock vertical, with it gapping up 20% the following day. Shares gave up a good portion of those gains intraday, however, leaving behind a candle with a bearish tail on the daily chart, which signaled buyer exhaustion.

Below we see the post-earnings rally also marked the weekly chart with a bearish candle that begs for at least some consolidation in AMZN stock before a better upside move. And from a momentum perspective, the relative strength index (RSI) has also been pushed to extreme overbought readings.

AMZN Stock Chart
Click to Enlarge

Moving on to the daily chart, AMZN stock sits on a defined line of support. A break below it would be like a trap door opening to send shares to the $490 area, which is the bottom of the post-earnings up gap. Look to sell AMZN stock short once it holds below the $518 mark for a move toward $490.

AMZN Stock Chart
Click to Enlarge

Article printed from InvestorPlace Media, https://investorplace.com/2015/08/amazon-com-inc-amzn-stock-trade-of-the-day/.

©2019 InvestorPlace Media, LLC