A recent wake-up call, market seasonality, and lagging share price for Amazon (NASDAQ:AMZN) could turn into a technical treat for bears in the coming weeks. But with no guarantees of repeat performances, grizzly AMZN stock investors looking for more of the same need to suit up wisely. Let me explain.
The month of October is notorious for its history of swift market corrections. But so far 2019 has proven more volatile than overtly bearish. In fact, after swinging to a loss of around 3% early on in the first trading week of the month, the large-cap and tech-heavy Nasdaq Composite finished up 0.95%.
What’s more, the index closed in a bullish hammer narrowly above last October’s high just prior to the market’s deep correction which lasted until the end of December. Not bad, right? And with AMZN stock finishing in a similar hammer of 0.82% for the week, it was a good one for Amazon investors as well.
Nevertheless, to call an end to 2019’s bear could be premature with the month of October just underway. And when looking at the Amazon stock price chart, the technical story still appears to favor lower prices and continued profits for bears.
Amazon Stock Weekly Chart
As stated, last week was a good one for bullish AMZN investors. While Amazon stock has lagged the NASDAQ and large-cap peers Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) in recent months and remains well-removed from its own all-time-high set a year ago, the five day period did result in a higher low variation of a double-bottom supported by the 50% retracement level.
All told, there’s obviously decent evidence AMZN stock’s relative weakness could be behind it and higher prices await Amazon shareholders. First things first: Bullish pattern confirmation is 0.90% above Friday’s close as the AMZN stock price will need to reclaim $1,756, which is marginally above last week’s high. That almost seems like a given, but I’m not overly keen on Amazon’s ability to rally strongly and maintain the pattern low.
Multiple trendline breakdowns and an overtly weak stochastics situation leads this strategist to the conclusion that AMZN’s weak behavior and downtrend from the July high aren’t finished. On continued weakness in Amazon stock price, taking initial profits on a challenge of $1,585 – $1,600 which is backed by AMZN’s next numerical milestone and the 62% support level looks appropriate.
The AMZN Stock Trade
I’d look to seek short exposure in AMZN stock below $1,818. I’d also use this level in shares for exiting if needed. This strategy closes out the position about 1% above $1,800, as well as Amazon’s most recent failure of angular price support. This exit offers sufficient evidence the position is on the wrong side of the price action despite a downtrend which could be defended up to the September pivot high of $1,853.66. This strategy also smartly minimizes risk to 4.5% or less.
Bottom-line, for bearish traders that wish to suit up with ironclad protection, short exposure of just 0.63% and while maintaining plenty of profit potential, the AMZN stock December $1,650 / $1,610 put vertical spread for $11.00 or less is the favored approach for positioning.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits