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Multiple Gaps In Amazon

01/05/12 11:57:43 AM
by Chaitali Mohile

Amazon has witnessed many gaps in the past few months. The gaps down have induced bearish pressure in the stock.

Security:   AMZN
Position:   N/A

Various short-term bullish and bearish rallies of Amazon (AMZN) have undergone multiple higher and lower gaps. Earlier in August 2011, AMZN witnessed a small gap down (blue arrow) before breaching the 200-day moving average (MA) support. A pullback rally filled the previous gap down and immediately jumped above the 50-day moving average (MA) resistance with a narrow gap up.

Although a gap appears due to some news flow in the particular company (stock), they flash bullish or bearish force on the technical chart. The earlier gap down helped price to move closer to support, whereas the gap up pushed the stock above its MA resistance. So both gaps have shown different reactions on the technical chart in Figure 1. After forming a top at 245 levels, AMZN began declining.

The two lower gaps breached the 50-day and 200-day MA supports, increasing bearish pressure on the descending rally. The stock speedily plunged below the previous lows of August 2011. Recently, the 50-day MA has breached the 200-day MA, indicating a bearish crossover. According to the price chart, AMZN is likely to continue its downside journey. However, an oversold stochastic (14,3,3) in Figure 1 is resting at 20 levels, signifying the possibility of a fresh bullish rally.

The average directional index (ADX) (14) is a highly overheated bearish trend at 49 levels, suggesting a reversal rally for AMZN. The moving average convergence/divergence (MACD) (12,26,9) is tangled in negative territory, showing huge volatility in the rally. Thus, the indicators are extremely bearish, but the price could drop a few more points before actually initiating a fresh bullish rally.

Graphic provided by:
AMZN has breached the lower trendline of an ascending channel on the weekly time frame chart in Figure 2. Earlier, the stock had begun various bullish rallies with the support of this trendline. The blue arrows in Figure 2 shows the upward move with bullish momentum. The stochastic oscillator has surged with the support of the 20 level. In November 2011, however, AMZN broke the trendline support as well as the 20 level of the oscillator, initiating a robust bearish breakout (see the two red arrows). The stock has breached the 50-day MA support along with the trendline.

The bearish breakout gave birth to a fresh downtrend. The moving average convergence/divergence (MACD) (12,26,9) underwent a bearish crossover in positive territory. Thus, the picture was completely bearish.

Graphic provided by:
Currently, AMZN has reached 173 levels, shredding 23 points from the breakout point. The downtrend is still developing, an oversold oscillator is not flashing any reversal indication, and the negative MACD (12,26,9) is ready to slip into bearish territory below the zero line. Thus, the stock would continue its bearish journey toward its first support of the 200-day MA followed by the previous low at 110 levels. The fall would continue till the indicators show bullish reversal signals.

AMZN would witness a few pullback rallies during its downward price action. The gaps formed in Figure 1 would get filled by these short technical rallies but cannot generate fresh bullish sentiments in the stock.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address:

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