Amazon.com, Inc.: AMZN Stock Is Bear Chow

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Amazon.com, Inc. (NASDAQ:AMZN) has bounced back nearly 20% after reaching historic near-term oversold conditions in early February. While the bulls are rejoicing, it looks like bears in Amazon stock will get the last laugh.

Beat the BellThis bounce looks to have been of the dead-kitty variety.

A layer of technical resistance looks to keep AMZN from pushing much higher for now, which is to say that traders and active investors may find good opportunities on the short side of Amazon stock upon a confirmed bearish reversal.

It is difficult for the crowd to accept it when a darling trend-following or cult stock such as AMZN changes its intermediate-term trend, particularly when it was one of the few stocks working higher in a big way in 2015. But that’s exactly what is taking place right now, and I do not think the bleeding is over just yet.

Trend followers and traders who in 2015 were conditioned to buy every single dip in Amazon stock must now rethink their “strategy.”

However, the other side of this is that fund managers with little to take profits in when the broader market corrects are forced to take profits for margin calls or just to look “less bad” in a stock like Amazon. This will mean-revert AMZN stock much more severely than it otherwise would. But then again, after a parabolic rise in 2015, Amazon shares were overdue for a correction anyway.

Amazon Stock Charts

When we look at the multiyear weekly chart of AMZN, we see just how dramatic the overshooting move of 2015 was. After an orderly multiyear incline — as marked by the red-dotted parallels — Amazon stock went vertical.

As 2016 arrived, gravity finally kicked in, and from the late 2015 highs to the early-February lows, AMZN shares dropped about 30%, which brought it back to the upper end of the multiyear channel.

A better area of support for the stock however is in the low to mid-$400s, which would a) mark about the middle of the multiyear channel and b) qualify as a retest of a major breakout area, i.e. former resistance from the spring of last year.

Amazon stock chart weekly
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A stock as agile or volatile as AMZN requires us to draw lines with a thick crayon and not with a pencil. In other words, areas of support and resistance can easily be overthrown for a short while before ultimately standing firm.

Looking at the daily chart, we see that in early February, Amazon broke below its red 200-day moving average for the first time since 2014, which led to a quick flush lower. On the way back up over the past few weeks, Amazon stock has since marginally pushed back above this moving average, which many traders likely had used as a stop-loss on their shorts.

More important than just looking at a single moving average, however, is taking into consideration where a confluence or resistance may come into play. On the chart, we see that while the stock is back above the 200-day, it is also coming into horizontal resistance (black line), and from a Fibonacci retracement perspective has now retraced just about 50% from its previous lower high in late January.

In Monday’s trading session, AMZN stock closed well off its intraday highs, thus rejecting its intraday highs for the third day in a row.

Amazon stock chart daily
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While all of these are potentially bearish signs, what’s still missing (from my perspective) to get short Amazon stock is an actual follow-through or confirmation selling day.

From current levels, a daily close below $544 in my mind would satisfy this requirement and could set up a trade for an initial move back into the high $400s.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/amazon-com-inc-amzn-stock-is-bear-chow/.

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