Since early July, shares of Amazon (NASDAQ:AMZN) have fallen 15%. Along the way, AMZN stock has traced out a well-defined bearish pattern on the charts and violated several key technical support areas. Heading in to the typically volatile month of October this stock could now be setting up for more downside from a trading perspective.
I have for a long time now discussed the structural imbalance in the broader U.S. equity indices, particularly the S&P 500, which due to the nature of its calculation (market capitalization weighted), is heavily influenced by a few very large technology-related stocks. While Amazon, according to official S&P 500 categorization, isn’t a technology stock but rather a “consumer discretionary” stock, it none-the-less is a heavyweight stock.
AMZN Stock Charts
As we look at the below charts, let us also remember that as of this writing we are only one week away from the historically volatile month of October. While it might be slightly dramatic to expect a major stock market crash in any given October, the odds are highly in favor of at least one volatility spike for stocks in this month, which translates into some promising discounts.
In order to give the current setup in Amazon stock some context, I created a multi-year chart in logarithmic calculations. Here you can see that while the stock has trended higher nicely over the past few years, the stock this year struggled (or failed) to break above its 2018 highs. In fact, some people have already called this year’s re-test of the 2018 highs a double top based on technical analysis, which has bearish implications for the stock.
Additionally, note that with the selling pressure of recent weeks AMZN stock is now once again leaning heavily on the purple diagonal support line that has been a good reference point for some time now. A break below this line could further accelerate the selling pressure.
On the daily chart we see that in the first half of September, AMZN stock found itself bumping into technical resistance. This was comprised of the yellow 50-day and the blue 100-day simple moving averages. Furthermore, the broken diagonal trend line acted as resistance as the stock made a lower high versus its July high.
As a result of the past couple of days of selling pressure, AMZN stock now sits on critical horizontal support around the $1,740 area. While the stock could be oversold in the immediate term, from here, the path of least resistance seems to point lower toward $1,670 as a next downside target.
For those market participants that think stocks as an asset class could come under pressure in October (as I do), the options market allows plenty of opportunity. Specifically, one could buy a Nov $1,750-$1,650 bear put spread.
While stocks could see volatility in October, there is one market that is trending strongly higher and could offer massive gains for investors. Join me on a special webinar Thursday September 26th where I lay out the details of this rare trend following opportunity.
Special webinar: The best trading opportunity of the decade: Thursday Sept. 26th. Register here.
