Amazon.com, Inc. (AMZN) fell sharply with broad benchmarks on Monday, bringing a two-day decline to 6.6% while dropping under the 2018 and 2019 highs in a potential failed breakout. The 50-day exponential moving average (EMA) near $1,950 marks the major inflection point in this downdraft, with a sturdy bounce at or above that level having the power to reach last week's all-time high while a breakdown would set off all sorts of sell signals that could mark a major top.
The stock fell in sympathy with the falling market, but more specific headwinds may have contributed to the downturn. Some retailers are reporting Asian supply chain disruptions as a result of the coronavirus outbreak, raising the potential for higher prices or lower margins in the first quarter. In addition, the negative news flow may be having a destructive impact on consumer sentiment, potentially translating into lower sales.
Fortunately for sector bulls, supply breakdowns and weak consumer spending shouldn't affect retail stocks once the outbreak runs its course. No one knows when that will happen, but warm spring weather ended the SARS outbreak in 2002, and the same thing could unfold this time around. In turn, this suggests that negative headlines will persist into April or May, keeping a lid on shares of Amazon and its rivals into the second quarter.
AMZN Long-Term Chart (1999 – 2020)
A vertical uptrend topped out near $100 in January 1999, while April and December breakout attempts failed, completing a triple top that marked the highest high for the next 10 years, ahead of a bear market decline that dropped the stock 95% into the 2001 low at $5.51. A bounce into 2003 stalled near the .618 Fibonacci sell-off retracement level, giving way to a shallow but persistent pullback that found support in the mid-$20s in 2006.
A rally into 2007 reversed about 12 points under the 1999 high, yielding a vertical but manageable sell-off into the mid-$30s during the 2008 economic collapse. This modest resilience paid off in 2009, when the stock finally completed the round trip into the multi-year peak. It broke out a few months later, entering a rising channel that booked historic gains into a 2017 channel breakout that confirmed support at $1,000.
The subsequent buying spree ended at $2,050 in September 2018, giving way to a fourth quarter decline that found support in December at an 11-month low just above $1,300. The stock turned sharply higher at the start of 2019, booking a 100% retracement into the prior high in July. It then rolled into a shallow correction, completing the final stage of a cup and handle breakout just three weeks ago.
AMZN Short-Term Outlook
The monthly stochastic oscillator entered a sell cycle in the fourth quarter of 2018 and turned higher in January 2019, stalling at a lower high in May. The subsequent downswing undercut the prior low but failed to reach the oversold level, turning higher once again in November. This bullish impulse has now reached a trendline of lower highs going back to 2018. This is unusual because the indicator carves few trendlines, but they tend to be extremely reliable when it occurs.
In addition, the monthly chart has posted a bearish gravestone doji with just four trading days left in February. This ominous-looking price bar will draw unwelcome attention from market technicians if it persists into next week, adding to growing odds that the stock has failed this month's breakout above 18-month resistance. Even so, it could make a final stand at rising trendline support near $1,850, which has narrowly aligned with the 200-day EMA.
The Bottom Line
Amazon stock has sold off through the 2018 and 2019 highs just three weeks after a major breakout, raising the potential for a pattern failure that signals a long-term top.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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