Amazon Forms Bullish Pattern While Consolidating Sideways: The Bull, Bear Case For The Tech Giant

Amazon.com, Inc AMZN opened slightly higher on Tuesday, in tandem with the S&P 500, which was edging upwards.

The e-commerce and streaming giant has been trading mostly sideways this week on declining volume, which indicates a period of consolidation is taking place. In Amazon’s case, the consolidation pattern appears to be taking the form of a flag formation within a larger bull flag pattern.

The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines or into a tightening triangle pattern.

For bearish traders, the "trend is your friend" (until it's not) and the stock may continue downwards within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.

Bullish traders will want to watch for a break up from the upper descending trendline of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.

A bull flag is negated when a stock closes a trading day below the lower trendline of the flag pattern, or if the flag falls more than 50% down the length of the pole.

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The Amazon Chart: Amazon’s bull flag pattern was created between March 28 and Tuesday, with the upwards sloping pole formed during the first four days of that time frame and the flag forming over the trading days that followed. The measured move, if Amazon breaks up from the pattern on higher-than-average volume, is about 7.5%, which suggests the stock could spike up toward the $109 level.

• Amazon is also trading in an uptrend, making a consistent series of higher highs and higher lows. The stock’s most recent higher high was formed on Friday at $103.45 and the most recent confirmed higher low was printed at the $101.43 mark on Monday.
• Bullish traders want to see Amazon break up from the bull flag on higher-than-average volume, which will also confirm the uptrend remains intact. Bearish traders want to see Amazon break down under the eight-day exponential moving average, which will negate the bull flag and cause the stock to lose the psychologically important $100 level.
• Amazon has resistance above at $109.30 and $117.16 and support below at $99.88 and $95.49.

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