Shares of Amazon.com, Inc. (NASDAQ:AMZN) still are higher by about 27% for the year, but have slipped about 12% off their highs in recent weeks. While I wouldn’t bet against AMZN stock in the intermediate- to longer-term, I think a short-term consolidation to the downside is likely.
This week, news broke that the Federal Trade Commission approved Amazon’s acquisition of Whole Foods Market, Inc. (NASDAQ:WFM) and that shareholders also voted in favor of the deal.
So far, this hasn’t lifted Amazon stock, though it did cause havoc in retailers including Costco Wholesale Corporation (NASDAQ:COST) and Kroger Co (NYSE:KR) as fears spread over pricing pressure now that Amazon has a more meaningful position in the grocery business.
I have received many questions about whether this will have an immediately positive or negative effect on AMZN. In my eye, this will require time for investors to digest. Amazon.com must show investors how it will play out, which means in the near-term, I will remain focused on the charts.
AMZN Stock Charts
As a point of reference, when I last discussed Amazon on July 25, I offered that shares would be a better sell or short following the upcoming earnings report and focused on an initial downside price target in the mid- to high $900s. Since then, the stock has dropped 12% and reached my initial downside targets.
On the multiyear weekly chart, we see that the recent pullback in AMZN stock, as discussed on July 15, did classically take place as the stock had reached the very upper end of its trading range.
Moving averages legend: red – 200-week, blue – 100-week, yellow – 50-week
While the stock has since pulled back, it does have more room to the downside to retest the lower end of the trading range.
The MACD momentum oscillator at the bottom of the chart also has plenty further room to deflate as it remains elevated.
Moving over to the daily chart and a somewhat nearer-term time frame, note that AMZN stock has well defined yet thinning horizontal support around the $950 area. A break and hold below there could point the stock to a next downside target at the red 200-day simple moving average, which previously offered support in the fourth quarter of 2016.
Moving averages legend: red – 200-day, blue – 100-day, yellow – 50-day
At this stage, I would not consider buying AMZN stock again (from a swing trading perspective) until a strong bullish reversal takes hold on the daily chart.
Bullish and bearish reversals are an integral part of profitably navigating the stock market. For those unfamiliar with these strong bullish reversals, I will be holding a special webinar Aug. 30 for InvestorPlace readers on how to find high-probability trade setups using these powerful moves.
Active investors and traders should look to buy puts or at-the-money put spreads using November options to play further near-term weakness in Amazon stock. Trade using the $900 area as a next downside target. Consider any strong bullish reversal to be a stop-loss signal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Aug. 25.
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