Amazon Defies Market, Spikes Higher In This Pattern: Is The Stock Headed On A 9% Run?

Amazon.com, Inc AMZN defied the general market Wednesday, rising 1.5% while the S&P 500 slid 0.7% amid investor jitters over the debt ceiling deadline and whether the Federal Reserve will continue to hike interest rates.

The pop higher could be due to the bull flag Amazon began forming on May 15. 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 downward within the 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 was created between May 15 and Wednesday, with the pole formed over the first four trading days of that timeframe and the flag forming since. The measured move on a break up from the flag is about 8.5%, which suggests Amazon could eventually spike up toward $123.50.

• Traders can watch for the stock to break up from the top descending trend line of the flag on higher-than-average volume to indicate the pattern was recognized. Bearish traders want to see Amazon fall under the lower trend line on higher-than-average volume, which would negate the bull flag.
• Amazon is also trading in an uptrend, making a consistent series of higher highs and higher lows. The most recent higher high, within the trend, was formed on May 18 at $118.60 and the most recent higher low was printed at the $131.78 mark on Tuesday.
• Amazon has resistance above at $117.16 and $125.93 and support below at $109.30 and $99.88.

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