Amazon Stock Bounces Higher In This Pattern: Why Bullish Traders Want A Close Above This Level

Amazon.com, Inc AMZN popped more than 1% on Monday, in tandem with the S&P 500, which was bouncing by about the same amount.

The stock has been steadily declining since Feb. 3, after rejecting the 200-day simple moving average (SMA).

Traders and investors are mulling over recently released economic data, which has increased the probability that the Federal Reserve will continue to raise interest rates into the summer of 2023.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

A temporary rebound was the most likely scenario for Amazon because the stock hasn’t bounced up to print a lower high within its downtrend pattern since Feb. 22 and stocks rarely move in one direction for a long period of time.

A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.

The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.

Traders can use moving averages to help identify a downtrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend.

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

A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.

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

• Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
• Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.

The Amazon Chart: Amazon’s most recent lower high was formed on Feb. 23 at $97.01 and the most recent lower low was printed at the $92.32 mark on Friday. Technical traders may have predicted Amazon would trade higher within the trend on Friday, when Amazon printed a doji candlestick.

• The higher open on Monday caused Amazon to regain the 50-day SMA, which the stock closed below on Friday. Bullish traders will want to see Amazon hold above that level for more confidence a larger rebound could be on the horizon.
• The move higher on Monday was taking place on far below-average volume, which indicates the bulls are weak and suggests the downtrend may continue. If the stock closes near to flat, Amazon will print a second consecutive doji candlestick, which could indicate the next lower high has occurred and the stock will retrace lower on Tuesday.
• Bullish traders want to see the stock close near the high-of-day, which could indicate more upside is in the cards for Tuesday.
• Amazon has resistance above at $95.49 and $99.88 and support below at $92.18 and $90.77.

Read Next: Amazon Commits Resources For Same-Day Delivery Boost To Drive Bottomline Growth