Amazon Breaks Resistance, But Will It Hold?

Shares of Amazon.com, Inc. AMZN closed above important resistance at the $3,400 level. Unfortunately, investors will now need to be patient. It will take a few days to see if the shares can hold their gains.

What To Know: On Oct. 12, Amazon's stock closed above this important level, but two days later fell back through it and a nasty sell-off followed. Shares also traded above $3,400 on Feb. 3, and a sell-off followed then, too.

For insight into Amazon's next trend, investors need to watch for an important dynamic.

Why It's Important: When markets are rallying, levels that were resistance turn into support. This happens because of seller’s remorse. Huge amounts of volume trades at important levels, like $3,400 for Amazon. For every trade, there is a buyer and a seller.

With shares higher, many of those who sold at $3,400 now regret their decision. A number of these remorseful sellers will decide to buy their shares back. But they will only do so if they can pay the same price they sold at.

As a result, they will be placing their buy orders at $3,400. If there are enough of these buy orders, the level will turn into support. This is a bullish dynamic for the stock. This support will be the platform for a new move higher.

See also: How to Buy Amazon Stock

What's Next: In market rallies, resistance converts to support.

Amazon shareholders should watch this over the next few days. If $3,400 becomes support, a new uptrend could be forming. If it doesn’t, another sell-off could follow like it did in October and February.

Amazon reports its latest earnings after Thursday's closing bell.