Amazon Chart: Doom or Boom?

NEW YORK (TheStreet) -- Last week I touched on Amazon (AMZN), and how the bears' temporary celebration to a falling stock price usually results in an excellent buying opportunity for the bulls. 

However, as I stared at the charts, I wondered to myself, Where is this one headed? 

Temporarily, it would appear as though the strongest hand still appears to be held by the bears. Below is a one-year chart of Amazon highlighting the recently weak price action. 

As you can see in the graphic, an optimist could argue that the $340 price level looks to be support for the stock. But one could also argue that the stock has failed to breakout from the lower trading range. It also failed to break through the $360 level and closed below its 21-day moving average. 

Although I'm bullish on Amazon over the long-term, I have to say that I don't see a very favorable setup at the moment. As a common saying in technical analysis goes, the more times the price bounces off support or resistance, the more likely it is to break through that particular level. Right now, $340 is still vulnerable to the downside. 

Considering that the current sentiment around the stock is still rather negative following the company's less-than-stellar fourth quarter earnings results, it appears more realistic that the stock will flush down to the $315 to $325 level before finding stronger support. 

But don't think of that as a bad thing if you're a bull. All it does is give you an opportunity to buy the stock. Quite frankly, I hope it gets there. Let's take a look at a longer term, three-year chart of Amazon.

While shares of Amazon looked vulnerable in the first chart, things appear much healthier with the longer term view of three years. 

There are two prominent things to note. The first is that the stock has only touched or broken the 200-day moving average (green line) four times in the previous three years. 

The first, third and fourth incidences quickly resulted in higher prices shortly thereafter. The struggle the stock presented near the end of 2011 is surprising to say the least, as the S&P 500 ETF (SPY) recovered quite nicely from several months of severe volatility. 

However, it was in that time frame that allows me to get to point number two. The stock put in a series of higher lows in January 2012 through May 2012, that allowed a long-term trend line to form. 

That trend line (in orange) provided support in various times of need, when the stock was pulling back. Today, the line comes into effect just under $320. The 200-day moving average, which has also acted as support, rests just above that level, at $326.50. 

What I'm trying to say is this: While everyone is out celebrating/ripping their hair out (depending on if they're bearish or bullish), the long-term trend is still intact.

The stock, according my work, appears to have more downside ahead in the short-term. However, historically speaking, the stock should find support from its long-term trend line and 200-day moving average. 

A final closing note to those second-guessing shorts, deer-in-the-headlight longs, or the sideliner wondering if this is the end, please realize that this is not the end for Amazon. 

The answer to why is simple: Because e-commerce it truly just beginning to find its groove in a very meaningful way. 

Also, if this was indeed the end and the Amazon story was over, the stock would be much lower right now. Not down 12% year-to-date. It would be down 20%, 30%, possibly even 40%. 

Short-sellers have been shooting against valuation for years. Years! One day, maybe they'll be right. But that time has yet to come. The long-term trend is still intact.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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