Amazon Forms Second Possible Bull Flag Pattern: Will The Stock Enjoy Another 8% Run?

Amazon.com, Inc AMZN topped out at $122.92 on Tuesday as the stock continued higher on the break of a bull flag pattern, which Benzinga predicted May 24 could take Amazon to the $123.50 mark.

The tech giant completed over 8% of a projected 9% move higher, which may have offered opportunity to bullish traders who also recognized the pattern.

While the local top may be in, Amazon is also trading within an uptrend pattern that is likely to continue until the stock forms a lower low. An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.

In an uptrend, the "trend is your friend" until it’s not, and in an uptrend there are ways for both bullish and bearish traders to participate in the stock.

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The Amazon Chart: Amazon topped out at $122.92 on Tuesday and finished the trading day by printing a bearish hanging man candlestick on the daily chart. The candlestick was confirmed because on Wednesday, Amazon was trading slightly lower.

• The lower prices on Wednesday could be the start of Amazon setting up another bull flag pattern, with the pole formed between May 23 and Tuesday and the flag forming over the days that followed. If the pattern is recognized, the measured move is another 8%, which suggests Amazon could rise toward about $130.
• The sideways consolidation is helping Amazon’s relative strength index to lower, which is positive for bullish traders. Bullish traders eventually want to see big bullish volume come in and break Amazon up form the flag on higher-than-average volume.
• Bearish traders want to see big bearish volume come in and drop Amazon down under the eight-day exponential moving average, which would negate the bull flag.
• Amazon has resistance above at $125.93 and $130 and support below at $117.16 and $109.30.

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