Amazon.com, Inc (NASDAQ: AMZN) closed 2.5% higher on Thursday but on declining volume, which caused the stock to form an inside bar pattern.
The e-commerce giant has been trading in a solid uptrend and has recently broken up from two consecutive bull flag patterns, the most recent - which Benzinga called out on May 31 - the day before Amazon broke up from the formation and rallied a total of 5.66% before topping out at $127.40 on June 6.
While Amazon has been trading in an uptrend, the pattern is taking place within an ascending channel. The pattern is bullish for the short term, but can be bearish down the road.
For bullish traders, the "trend is your friend" (until it's not) and the stock is likely to continue upwards. Aggressive traders may decide to buy the stock at the lower trend line and exit the trade at the upper trend line.
Bearish traders will want to watch for a breakdown from the lower ascending trend line, on high volume, for an entry. When a stock breaks down from an ascending channel, it's a powerful reversal signal and indicates a steep downtrend may be in the cards.
If Amazon eventually breaks down from the channel, it could cause volatility to increase in the general market. Traders wishing to trade the 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 SPDR S&P 500 over the next 30 days.
The Amazon Chart: Amazon fell over 4% on Wednesday and on Thursday, the stock bounced up higher but traded completely within the previous day's trading range. The trading action caused Amazon to form an inside bar pattern, which leans bullish because although Amazon fell on Wednesday, the stock didn't negate its current uptrend.
- The most recent higher high within the uptrend was formed on Tuesday at $127.40 and the most recent higher low was created at the $119.17 Mark on May 31. If Amazon breaks up from Wednesday's mother bar over the next few days, Wednesday's low-of-day will serve as the next higher low within the pattern.
- If Amazon breaks below the low-of-day, the stock will be in danger of forming a lower low, which would negate the uptrend. A lower low would also cause Amazon to break down from the rising channel, and if that happens on higher-than-average volume, could accelerate a downside move.
- Amazon has resistance above at $125.93 and $131 and support below at $117.16 and $109.30.