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Amazon Stock Trend Favors the Bulls - but Support Must Hold

Amazon stock has an interesting setup. Given its strength, the trend favors the bulls, but the stock has a notable level of support it needs to hold.

When it comes to performance, Amazon  (AMZN) - Get, Inc. Report has been a stud. The shares are up 94% from the March lows.

If that seems cherry-picked, then consider that the stock is also up 71% so far in 2020 and 74% over the past 12 months. In short, this name has been a dominant force, not only in tech but in the entire market.

If someone told me in mid-March that Amazon would be pushing a $1.6 trillion market cap amid rising coronavirus cases and no Prime Day in sight, I would have said, “No way!”

But that’s exactly what we’re looking at now. To be clear, Apple  (AAPL) - Get Apple Inc. (AAPL) Report, Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report and other megacap tech titans haven’t disappointed either.

Traders who have followed price action over their own biases have likely fared the best. For Amazon stock, the trend has been higher, and right now the charts suggest another move to the upside could be in the works.

At the same time, a notable level of short-term support needs to hold too. Let’s break it down.

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Trading Amazon Stock

Daily chart of Amazon stock.

Daily chart of Amazon stock.

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Right off the bat, I go with the trend and the path of least resistance. 

During uptrends we’re buying the dips and breakouts over resistance, and during downtrends we're selling the rallies and breakdowns below support.

In the case of Amazon, the current trend is higher — particularly after strong earnings — so the bias leans to the long side vs. the short side. 

Amazon is setting up in an ascending triangle pattern. That’s where rising uptrend support (blue line) guides the stock higher into a static level of resistance. For Amazon, that resistance comes into play near $3,250.

If Amazon clears $3,250, it puts the three-times range extension in play at $3,303, followed by the all-time high at $3,344. Above that and a move toward $3,500 or $3,600 is potentially on the table, with the 361.8% extension all the way up near $3,649.

However, for this to play out, Amazon stock has to hold support. That comes into play near $3,100, where the stock finds the 20-day moving average, this week's and last week’s low, and uptrend support.

A close below this mark likely puts more downside in play. Specifically, I am looking at the 50-day moving average near $2,900. This is also a level where buyers stepped in multiple times in July.

For a stock the size of Amazon, a $200 dip is not earth-shattering. But it’s worth knowing where the stock could go in either scenario.