Since closing on Sept. 21 at fresh new monthly highs, the stock closed in the red the next four sessions. Friday's performance was its worst of the week. The stock closed with a modest 1.8% loss but put in an ugly downside reversal in doing so. In the near term, this negative action, especially on a Friday, may signal the beginning of a pullback. Amazon bulls may want to step aside and await lower entry levels.
Amazon held a very solid support area as the August flush ran its course. The stock bottomed near the $450 area, which had earlier marked the April and June highs. Amazon traced out a near perfect bullish pennant during this ten week time period. When this pattern gave way, with a powerful upside breakout on July 13, the stock quickly zoomed more than 28%. A return to the top band of the consolidation that preceded the mid-July surge seemed very unlikely in mid-August. It took the high-volume breakdown of Aug. 21 and Aug. 24 to push the stock back down to the $450.00 area.
Investors began to bid aggressively for Amazon as it began to lift off the $450 area after midday on the Aug. 24. The powerful buying wave continued for the next three sessions, helping the stock recover all of the damage inflicted between Aug. 20 and Aug. 24. In September, Amazon continued to drift higher, and as last week began, the stock moved past the August high on above-average trade. The fade that followed has wiped out the momentum and has put investors on edge. Friday's failure, after the stock opened the session with an upside gap, is rather ominous in the near term.
Patient investors should focus on the September low near $493.50. This is a key nearby support zone and could provide the footing needed for the stock to build a solid base. Amazon will likely need a fresh burst of volume to power past the August/September highs. A healthy pullback to support would be a good start of the process.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.