Sharp Earnings Selloff Tests Potential Bottom
It looks like Amazon.com Inc. (AMZN) stock may have found a bottom after this week’s sharp drop (following Q4 earnings release). Support appeared from $200.31 on Friday, marking a greater than 16% intraday decline from the prior week’s close to a 36-day low. An intraday bounce followed, with an attempt to recapture key price levels, starting with a long-term uptrend line and a higher swing low at $211.03. However, both levels failed to hold as AMZN stock weakened again following a bearish response to Q4 earnings released on Thursday, which missed EPS estimates despite revenue beat. Volume spiked to a 13-week high.
Key Fibonacci and Long-Term Support Zone Holds
If AMZN stock can get above and stay above the uptrend line and the prior low of $211.03 on a closing basis, a bottom may have been established. Support on Friday was seen in a demand zone near the confluence of a 61.8% Fibonacci retracement at $198.52, a long-term uptrend line, and most importantly, the 100-week average. In other words, a potentially significant support zone that could result in a rally towards highs.
50-Week Average Defines Near-Term Trend Control
But first, the 50-week average at $217.55 presents a key price zone to determine whether the rally can recover higher prices. The 50-week average marked support for an 8-month rising consolidation zone with a high of $258.60, until this week’s selloff. If the 50-week average confirms as resistance and AMZN stock turns down, bearish sentiment returns. That could lead to a challenge to support near the $200.31 low. On the upside, a sustained recovery above that average confirms that buyers have taken back control, increasing the chance for improving demand. With demand improving above the 50-week average, the lower swing high at $248.94 becomes a target.
Support, Resistance, and Short-Term Outlook
In summary, the key resistance level for AMZN stock is the 50-week average, while the important support level is defined by the 100-week average confluence zone. A bounce from a key support zone on Friday suggests that the bearish correction may be over and a bottom established. Otherwise, until there is a breakout from either of those two levels, short-term consolidation is anticipated. Bias remains bullish above the 50-week average, however, a sustained drop through the 50-week average and this week’s low of $200.31 leaves AMZN stock vulnerable to a sharp bearish escalation in selling.
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