Amazon (AMZN) opened Wednesday's session with an ugly downside gap. This was the third gap lower at the open since the stock's disappointing earnings report on Oct. 28. Amazon stock fell over 5% that day on nearly triple its average volume. Shares have been quite volatile since then and are beginning to show fresh signs of weakness.
Investors should be prepared for a sharp selloff.
The huge breakdown gap that greeted investors the morning of Oct. 28 drove Amazon stock below a key trend line. This trend line linked the stock's June and September lows. Two days later, with the help of a strong open, the stock retested it before fading into the close. Amazon has traded below the Nov. 1 high since, as overhead pressure has increased.
After Wednesday's 2% loss, which once again attracted very heavy trade, a continuation move to the downside appears very likely.
In the near term, Amazon investors should keep a close eye on the $750 area. This key zone marks the stock's August and September lows. A clear break of this area would take out last week's low as well.
Once through $750 there is very little support in place. A drop all the way down the the 200-day moving average, which is also the area of the 2015 high, is a distinct possibility.
A hold near $700 would offer patient bulls a very low-risk entry opportunity.