Amazon Falls Following Reports FTC Aims To Break Up The Company: A Technical Analysis

Amazon.com, Inc. AMZN opened about 2% lower Wednesday following reports of the Federal Trade Commission preparing a wide-ranging anti-trust lawsuit aimed at breaking up parts of the company.

The move lower caused the e-commerce and streaming giant to break down from an inside bar pattern on the daily chart, which leaned bearish because the stock had been trading lower prior to forming the pattern.

An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.

An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."

A double or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.

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The Amazon Chart: When Amazon broke bearishly from its inside bar pattern, the stock fell to the 50-day simple moving average (SMA), where dip buyers came in to support the stock. The 50-day SMA is a strong support and resistance indicator, and a stock is unlikely to break up or down from the area on the first attempt.

• The drop caused Amazon to confirm its downtrend remains intact. The most recent lower high was formed on Monday at $131.66 and the most recent confirmed lower low was printed at the $128.42 mark the day prior.
• If Amazon closes Wednesday’s trading session flat or near the high-of-day, the stock will form a doji or hammer candlestick, respectively, which could indicate the next low has occurred and Amazon will rise on Thursday. When the stock fell on Wednesday, it caused a gap to form, which is about 90% likely to be filled in the future.
• Bears want to see big bearish volume eventually come in to drop Amazon down below the 50-day SMA, which could accelerate a downside pressure. If Amazon falls through that area, volatility in the stock market could increase.
• Traders wishing to play the potential volatility in the stock market can use MIAX’s SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index SPIKE, track expected volatility in the SPY over the next 30 days
• Amazon has resistance above at $131 and at $136.83 and support below at $125.93 and at $117.16.