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When to Buy Amazon for Its Next Rally

Some say shares of Amazon have been struggling since their dip from the September high. I say it's consolidating. Here's what bulls need to see now.

While the S&P 500 was trading about flat on Tuesday, Amazon  (AMZN) - Get, Inc. Report continues to look for traction, down about 1.75%.

To be clear, the stock isn’t doing too badly in the grand scheme of things. But in order for the markets to progress significantly higher from this point it likely will need the mega-cap tech stocks to join.

Psychologically, the group is important. But purely from a market-cap perspective, the market will almost surely need these names to rally unless all the other sectors will start to climb significantly.

It’s not just Amazon lagging on the day, either. Netflix  (NFLX) - Get Netflix, Inc. (NFLX) Report and Apple  (AAPL) - Get Apple Inc. (AAPL) Report were both down more than 1.5% on the day, too. In fact, all of FAANG is down. 

Let’s look at the charts for Amazon to get an idea of when a rally may get underway.

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Trading Amazon Stock

Daily chart of Amazon stock.

Daily chart of Amazon stock.

The chart above does not show a weak stock, despite the recent action. To me, this type of price action is consolidation and is healthy for stocks sporting big gains.

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Amazon rallied hard from the March lows to the July highs. However, the $3,250 level was stiff resistance until shares broke out over this mark in August, eventually hitting a high of $3,552 in early September.

So what now?

I would call September’s selloff fast but orderly. From peak to trough, Amazon recorded a 19.2% decline. However, the stock reversed off its lows on Sept. 21st when it tested the 100-day moving average and closed higher on the day.

We’ve seen a decent bounce so far, but we’re not out of the woods.

Amazon stock is stalling below the 50-day moving average as it holds the 10-day moving average. Bulls will want to see the stock rotate over the former to get some momentum going.

On the chart above, there is a blue box highlighting last week’s range. For Amazon to get additional momentum working in bulls’ favor, it will need to rotate over last’s high at $3,224.

That will put the key $3,250 level in play. A powerful move above that opens the door to higher prices, including the three-times range extension near $3,303 and the current all-time high up near $3,550. 

Above that could put the 361.8% extension in play up near $3,648, but let's not get ahead of our skis. 

We have to keep an eye on the downside as well. A close below the 10-day moving average and the weekly low at $3,117 could put the 100-day moving average back in play, followed by the $2,900 level and the September low near $2,871.