It is currently trading about where it was this time last May, and more recently, in a channel pattern, delineated by resistance at $1,000 and support in the $940 area. This week's failure to hold above $1,000 is likely to send the stock price back down to its lower channel range. This would also be a test of the neckline of a large head-and-shoulders pattern on the chart. The integrity of this neckline support level could determine the future long-term direction of the stock price.
The daily chart shows a dark high-wick candle forming in Wednesday's session, and it closing back below the upper channel resistance level. This particular type of candle is considered a bearish reversal candle with the inference being that another attempt at a breakout has failed and the stock is headed back down to the lower end of the channel.
The stochastic oscillator made a bearish crossover and is moving lower and out of an oversold condition, which suggests some downside price momentum. The Chandre Trend Meter uses several moving averages on six different time frames to give a numerical value to the strength of the trend. It is moving down from its uptrend zone into its center or weak downtrend area, reflecting an early shift in trend direction. Chaikin money flow has been oscillating around its center line and flat 21-period signal average. Negative money flow should increase as the stock moves down to retest channel support.
The price action in Amazon over the last six months has formed a head-and-shoulders pattern on the chart. The June highs are the left shoulder, and the July high is the head, while the recent channel formation is a complex right shoulder. The intersection of channel support and the 200-day moving average in the $940 area is the pattern neckline.
Indications are, the stock is headed down to retest the neckline where, if the pattern repeats, it should bounce. But a confirmed break below this important level of support would signal a major top was in place and a negative shift in the long-term trend has begun.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.