Credit has to be given where it’s due — Amazon.com, Inc. (AMZN) bulls are putting up one heck of a fight, pushing back every time Amazon stock dishes out a bearish move.
On the flipside, the bears are still technically winning the war, sending AMZN stock subsequently lower with each salvo. And the near-term technical picture isn’t an encouraging one.
Yet, there is one last bastion of hope for Amazon stock, offering stronger support than most of the market may realize.
If AMZN stock can just hold the line there, investors may start to feel better about Amazon sooner than later, and sidestep this potential setback.
That’s a very big “if,” however.
Already on Its Heels
All the way through Friday, Amazon stock could have gone either way this week. Shares were at the tip of a converging wedge pattern (dashed), and though the upper side of the wedge shape as well as the 50-day moving average (purple) were putting up some resistance, the bulls weren’t backing down.
Click to Enlarge They were still in a position to punch through and really start a party. That changed this week, though. With a little help from the market, the support side of the wedge buckled.
There’s still hope, of course. The 20-day moving average (blue) and the 200-day moving average (green) are both immediately below the 50-day, and about to converge around $548.
Both have acted as support and resistance in the recent past, and when conjoined, could augment each other’s tendency to act as a floor.
Yes, AMZN broke under both of those lines at different points earlier in the year, and didn’t plunge to its death. Should shares fall below both of those lines for a second time in just a few months, though, the market may not be as enthusiastic about staging another recovery rally.
And make no mistake — the $548-ish area is a huge deal.
It’s only used by a small number of traders, but Fibonacci lines can and often do determine where a stock’s or index’s key psychological floors and ceilings are. It’s no coincidence Amazon stock has a key Fibonacci retracement line right around the same area where the 20- and 200-day moving averages are.
Specifically, the 38.2% retracement of the span between 2014’s three-time low of $283 and late-2015 peak of $696 lies right at $538 … near enough to $548 to say all these potential support levels are going to work together.
Click to Enlarge You can also see the $538 area as a turbulent zone in mid-2015, underscoring the likelihood that it’s a pivotal area now.
Maybe it won’t matter. Maybe Tuesday’s bullishness will take hold and end up carrying AMZN stock above the key 50-day moving average line at $577 and the upper edge of the wedge shape after all.
On the other hand, maybe the bulls are fighting a lost cause.
Bottom Line for Amazon Stock
For the time being, the right thing to do with AMZN is … nothing.
It’s currently trapped between a rock and a hard place — between support and resistance. The sellers technically have the edge, but the bulls have a big wall behind them to help their effort. Only time will really tell how this plays out.
Yet, after several days of go-nowhere consolidation, traders would be wise to keep Amazon stock on their watchlist and respond accordingly when the time comes. Once shares make their eventual move in whatever direction they’re going to make that move, it’s a move that could last a while.
Another bearish breakdown could set up a particularly big downside move, perhaps even to the $440 area where the next Fibonacci retracement line is waiting, and where Amazon shares found a ceiling in the first half of 2015.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
