is poised to plummet 15% following its earnings announcement on
Before explaining why I believe AMZN will fall, let me first
say that I've been a huge AMZN bull during the past year. In May,
I was looking for
a rally up
to $231. I later increased my target to
$252 in July
. Finally, I recommended buying AMZN another time in November.
This ChartWatch report
came out within hours of the base of the rally that took the
shares from $220 to $274.
So my 180-degree turn on AMZN is notable, considering my previous
Though I still love Amazon.com as a company, its stock doesn't
deserve that same affection. The chart below is showing
similarities to October 2011 ... days before it tanked 15% after
poor earnings. By comparing the blue circles, it's easy to spot
those similarities, too.
First, there were the bounces and huge surges following each kiss
of the 200-day moving average (black line). The shares rallied
36% in 2011 and by 25% in 2012 before pulling back.
The pullbacks are similar, too. Each decline was contained by the
50-day moving average (orange line), from which the shares went
on to notch new highs.
These new highs occurred just days before the earnings release.
Moreover, the RSI, Stochastics and MACD (blue arrows) technical
indicators are showing the exact same readings, suggesting the
shares carry the same vulnerabilities.
In fact, these technical indicators reveal the same divergences,
indicating that bullish momentum is waning. RSI and Stochastic
peaked at a higher level during the rise off the 200-day moving
average. MACD doesn't share that same divergence, however the
MACD is currently lower than it was during the price-peak made in
This chart shows the price of
shares along with an important pattern to monitor.
Traders should prepare themselves for an imminent drop. After
earnings I'd expect a decline to at least $245, but the stock
could even rip to as low as $235.
Equities mentioned in this article: AMZN
Positions held in companies mentioned above: