Watch Out for an Amazon Reversal

This article originally appeared on RealMoney.com on Sept. 5, 2014 at 9:30 a.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

Even though Amazon  (AMZN) has had a nice rally from the August low, I'm seeing a very important hurdle in this stock that needs to be cleared if that move is going to continue. My one other concern here is that the price is currently testing and hanging below the 200-day simple moving average. Also note that both the S&P 500 and Nasdaq indices are pretty much extended, meaning they are in position to correct to the downside.

Now, looking at the daily chart below, you can see time-based resistance to the current rally. That is because the current rally -- which lasted 23 sessions as of Thursday's high -- is currently very similar in timing to the rallies into the July 24 and June 11 highs. These lasted 23 and 22 sessions, respectively.

When each of those prior rallies ended, tradable declines were produced. In fact, time cycles will often terminate a trend, as I discuss regularly. So I don't know whether that pattern will repeat this time around, but we should certainly watch for indications of a rally failure right now. Aside from the symmetry time-based projections, there are also two other time cycles that show up on Sept. 4 and Sept. 5.

STOCKS TO BUY: TheStreet Quant Ratings and Dave Peltier's Stocks Under $10 has identified a handful of stocks that can potentially TRIPLE in the next 12 months. See them FREE today... Click Here NOW.

Next, as far as price indicators are concerned, we are looking at some rather healthy resistance to the rally between $349.02 and $352.55. This includes the 100% projection of the prior rally swing, which brought the stock higher by $44.43 -- similar to the current rally into the Sept. 4 high, which totals $44.79 so far.

Bottom line: If the rally in Amazon is going to continue, this is the resistance level that will need to be cleared as far as both price and time parameters are concerned. A failure to do so would leave Amazon vulnerable to at least a deeper downside correction. If the $337.16 swing low is violated in the coming sessions, I will back off the buy side in Amazon until further notice, and start considering shorts for a trade instead.

Let's see if what the stock does around this key decision and trade accordingly.

Please refer here for more information on trade triggers.

See here for general guidance on Fibonacci trade setups.

Today only: Get FREE access to all of TheStreet's subscription services. That's an annual value of $5,000! Click Here NOW for immediate FREE access.

At the time of publication, Boroden had no positions in the stocks mentioned.

More from Stocks

Either Respect Amazon When Investing or Risk Getting Run Over

Either Respect Amazon When Investing or Risk Getting Run Over

Amazon, Procter & Gamble, Southwest and Netflix - 5 Things You Must Know

Amazon, Procter & Gamble, Southwest and Netflix - 5 Things You Must Know

Time Warner's Jeff Bewkes: Department of Justice Theories Are 'Ridiculous'

Time Warner's Jeff Bewkes: Department of Justice Theories Are 'Ridiculous'

Just How Bad Is Facebook's Diversity Problem?

Just How Bad Is Facebook's Diversity Problem?

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away