Why Amazon Stock Is Tanking: Is There Any Sign Of Hope?

Amazon.com, Inc AMZN was plunging over 6% lower on Wednesday after four bullish days brought the stock up from a 52- week low of $2,048.11 to top out at the $2,316 mark.

The fall lower is a continuation of the downtrend Amazon has been trading in since March 29 after being unable to hold above the 200-day simple moving average, which is a bellwether indicator representing whether a stock is in a bull or bear cycle.

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 and descending longer-term moving averages (such as the 200-day simple moving average) indicating 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.

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The Amazon Chart: Amazon’s most recent lower high in its downtrend was printed on Tuesday, and the most recent lower low was formed on May 12. If the stock continues in the downtrend, Amazon will likely print another new 52-week low over the coming days.

• Bullish traders wanting to scalp or swing Amazon shares can watch for a reversal candlestick to eventually form, which could indicate a rally to the upside is in the cards. During a downtrend, bullish traders must remain agile because playing counter trend is risky because moves to the upside are often short-lived.
• Bearish traders want to see Amazon close the trading session near its low-of-day price, which will cause a bearish kicker candlestick to print and indicate lower prices are likely on the horizon.
• Amazon has a gap above between $2,615.22 and $2,806, which is about 90% likely to fill in the future. It should be noted that it could be a long period of time before that happens because the top of the gap is about 30% above the current share price.
• Amazon has resistance above at $2,176.79 and $2,367.92 and support below at $2,001.20 and $1,833.42.

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