Shares of Amazon.com, Inc. (NASDAQ:AMZN) on Wednesday found selling pressure as the company became the latest “victim” of the mega-cap technology stock sell-off. Word from the Donald Trump administration about possibly going after Amazon on the tax front didn’t help matters, even though those comments were backpedaled later in the day.
From where I sit, AMZN stock remains technically overbought and could see a next downside target about 10% lower before better support is found.
So you know, my cautious outlook on Amazon stock isn’t just coming on the back of a 4.38% down-day on Wednesday.
In fact, when I last offered my take on AMZN on March 13 I mused the following; “…momentum traders at this point are facing notably worsening reward to risk on the long side. Upon any strong daily bearish reversal, the stock could even set up for a mean-reversion lower back to the low $1,500’s” as a first downside target. This downside target was reached earlier this week already and Wednesday’s further weakness now sets the stock up for a move toward a next downside target.
To be clear, we are muddling through a very choppy market environment currently, which is to say that volatility is heightened and thus from a risk management perspective, “trading” position sizes are best kept conservative and stops widened.
Amazon Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that AMZN stock in early January went into what I often refer to as “vertical overshooting mode” to clients. Such moves very often tend to mean-revert toward a previous breakout point. In this case a mean-reversion move lower at the very least toward the upper end of the up-trending channel as marked by the black parallels looks to be in the cards.
Ultimately in my eye, so you know, this stock may have to mean-revert back into this up-trending channel before it’s all said and done.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart we see that as a result of Wednesday’s selling, AMZN stock has now pushed below the yellow 50-day simple moving average on a daily closing basis for the first time since October 2017. While the stock could bounce somewhat in the immediate term, a better downside target now becomes the 50% retracement of the entire rally from October 2017 into the January 2018 highs.
That 50% retracement lies around the $1,300 area, which also lines up with a pullback to the upper channel line on the above chart.
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