Shares of Amazon (NASDAQ:AMZN) have traded in a choppy fashion over the past couple of weeks, not surprisingly in-line with the broader U.S. equity complex. Looking ahead to the seasonally more volatile September/October period, AMZN stock looks to set up for a bearish trade.
When I last offered my take on AMZN stock on Aug. 8, in this column, I said that the stock is oversold and near-term downside limited, which could bode well for a small bounce trade. The stock has since continued to trade in the range with limited downside, but it also hasn’t manged to bounce much. Thus for me this trade is over and I am looking for a new trade into the autumn period … this time a bearish trade.
AMZN Stock Charts
Moving to the charts, we want to start off by looking at a logarithmic multi-year weekly chart. Here we see that over the past few years AMZN stock has traded higher in a well-defined range, and that we are now right back at the lower end of said range. Note, however, that two weeks ago the stock formed what so far is a lower high against the September 2018 highs. In other words, the stock is pressing notably against support and this ultimately could lead to a break lower. Several of the ultra-important and mega-cap technology related names currently have similar patterns to the one here displayed on AMZN.
Moving on to the daily chart things get interesting. We can see that AMZN stock began a first down-move in July, and then over the past couple of weeks largely trotted sideways in a consolidation pattern that reflects investor indecision or buyer and seller equilibrium. Through the lens of technical analysis one could look at this as a so called “a, b, c” corrective wave. Wave “a” would have been the selloff from late July into early August, wave “b” the current consolidation pattern and wave “c” (which has yet to come to fruition) would be one more move lower, to complete the pattern.
It is also noteworthy that the lower end of the recent consolidation wave, around the $1,755 area, also happens to line up perfectly with the red 200-day simple moving average. This is to say that this level is a “confluence area,” and thus, a break below there (if and when) could trigger more selling quicker.
So what is the trade setup? Active investors and traders could look to short AMZN stock in the $1,755 – $1,820 area, using a downside target at $1,670 and a stop loss at $1,865. Alternatively one could look to buy the Nov 1800 strike put or the 1800 – 1700 bear put spread.
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