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ChartWatch: Amazon.com Should Stall Soon

Though Amazon.com (NASDAQ: AMZN) has quickly ramped up by 15% in less than a month, the rally may be coming to an end soon.

For the record, I’ve been extremely optimistic about AMZN in the past (read more about that here and here). By now I believe the stock is likely to flounder in the short term. However, I don’t expect that decline to last long. Moreover, this pullback will offer a great opportunity to enter a long position.

In November, ChartWatch noted (blue arrows) that the shares often reverse course near the 200-day moving average (black). At the time, the stock was in freefall, but it quickly changed direction. The 200-day moving average proved to be a great place to buy AMZN as the stock took off.

http://stockcharts.com/c-sc/sc?s=AMZN&p=D&yr=1&mn=6&dy=0&i=p38359604268&a=268054912&r=1354809561770

This chart shows the price of AMZN shares along with an important resistance area to monitor.

The shares popped by more than 15% immediately following our research report. AMZN also regained the 50-day moving average (orange) in the process.

I’ll be watching the 50-day closely over the next several weeks. The shares are due for a pullback, especially as they approach the $260 resistance level (blue line). Though a decline appears likely, look for the 50-day moving average to provide support around the $240 level. And should buyers defend that line, AMZN is likely going to advance to a level above the recent $265 high.

Over the next few weeks, look for the stock to decline (consolidate) by around 5%. This decline may be a sharp one, as AMZN is a volatile stock. However, a quick decline, particularly one on below-average volume, would provide bullish traders with a fantastic entry price.

Equities mentioned in this article: AMZN

Positions held in companies mentioned above: none

 

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