Shares of Amazon (AMZN) - Get Report have been trading within converging uptrend lines since early 2016, forming a large rising triangle pattern. They have been attempting to break above trend line resistance for the last two months but have failed, returning back to the pattern range. The net effect is that the stock price has been unable to escape velocity, but still continues to grind higher. The process formed a secondary triangle pattern on the daily chart and this week the $1,020 secondary resistance level was broken. But a small series of narrow opening and closing range candles formed that could be signaling another short-term top.
The three candle formation is called a tri-star pattern and it is a rare technical pattern that represents a transition in the primary trend. In this case, the expectation would be that Amazon shares move back below the $1,000 level and re-enter the longer-term rising channel range. The red dashed line is a linear regression or best-fit-straight line of price since the start of the 2016 rally. Price has a tendency to diverge and revert around this line and it is likely that the stock is preparing to move back below it one more time.
The stochastic indicator is in an oversold condition but momentum oscillators can stay overbought or oversold for long periods of time. Accumulation/distribution has been moving above and below its 21-period signal average, which has been relatively flat. There is probably less to learn from the momentum indications than from the pure price action of the stock over the short term, and it suggests that Amazon will pull back below the $1,000 level, but that the long-term trend remains technically intact.
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The author is an independent contributor and at the time of publication had no position in the stock.