Amazon.com, Inc (NASDAQ: AMZN) opened slightly higher Tuesday before falling to near flat after S&P Global Ratings downgraded several U.S. banks amid the Federal Reserve's continued monetary tightening campaign.
The e-commerce and streaming giant launched its Fire TV Channels app to compete more closely with Netflix, Inc and Walt Disney Co and on Tuesday, Wedbush analyst Michael Pachter assumed an Outperform rating on Amazon and announced a price target of $180. The price target suggests 32% upside for the stock.
Despite the bullish news for Amazon, bearish action in the general market has caused the stock to form a downtrend and on Tuesday, Amazon may be forming its next lower high within that pattern. 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.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
If Amazon continues to trend lower, it could signal volatility in the stock market will 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 (NYSE: SPKIE), track expected volatility in the SPY over the next 30 days.
The Amazon Chart: Amazon entered a downtrend on Aug. 4, the day following its quarterly earnings print, and has since been making a series of lower highs and lower lows. Amazon's most recent lower low was formed on Friday at $131.15 and the most recent confirmed lower high was printed at the $141.28 mark on Aug. 15.
- On Tuesday, Amazon was looking to print a doji or hanging man candlestick, which could indicate the next lower high has occurred and the stock will retrace on Wednesday. If that happens, bullish traders want to see the stock bounce up from the 50-day simple moving average (SMA), which would negate the downtrend with the formation of a higher low.
- If Amazon drops down through the 50-day SMA, bearish volume could accelerate the downward trajectory, but if the bears run out of steam, the stock could bounce up from the lower range of a gap that hasn't quite closed.
- Amazon has resistance above at $136.83 and at $142.18 and support below at $131 and at $125.93.