Amazon Negates Bull Trend, Falls Under Bellwether Indicator: A Technical Analysis

Amazon.com, Inc AMZN was falling about 2.5% on Monday after closing down almost 4% on Friday and losing support at the 200-day simple moving average (SMA).

The e-commerce and streaming giant was trading inversely to the S&P 500, which was edging about 0.3% higher heading into a big week for the stock market, with the Federal Reserve set to announce its decision on interest rates Wednesday.

The drop lower negated Amazon’s steep uptrend, in which the stock had been trading since March 13. Although the uptrend is over, a downtrend may not be on the horizon because Amazon may trade sideways under the 200-day SMA for a period of time after not being able to remain above the level.

The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, while a stock trading under the 200-day SMA is considered to be in a bear cycle.

The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs. When the 50-day SMA crosses above the 200-day, a bullish golden cross takes place.

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The Amazon Chart: Although Amazon negated its uptrend, the stock hasn’t yet confirmed a new downtrend by forming a lower high above the most recent higher high of $110.86, which was printed Thursday. If Amazon trades higher on Tuesday, bearish traders will want to see the stock form a bearish reversal candlestick, such as a doji or shooting star candlestick, under the 200-day SMA for confirmation of a downtrend.

• Bullish traders want to see Amazon receive big bullish volume to drive the stock back up above the 200-day SMA. It would also be bullish if Amazon traded sideways under the bellwether indicator for a period of time, perhaps forming a triangle pattern or bull flag under the level.
• If Amazon can regain the 200-day SMA and remain above the area for some time, the 50-day SMA will eventually cross above the 200-day, causing a golden cross to form. If Amazon forms a downtrend, the stock may back-test the 50-day SMA and bounce up from that level.
• Amazon has resistance above at $109.30 and $117.16 and support below at $99.88 and $95.49.

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