Key Takeaways
- Amazon shares dropped in premarket trading Friday after the company reported weaker-than-expected quarterly revenue and issued light current-quarter guidance, as consumers opted to purchase cheaper products, lowering the average selling price in its core retail business.
- A bearish engulfing pattern formed on Amazon’s chart leading into the company’s earnings report, a candlestick formation that warns of lower prices.
- Amid post earnings selling, investors should monitor key support levels in Amazon shares at $170, $161, $145, and $123.
Amazon (AMZN) shares fell sharply in premarket trading Friday after the e-commerce giant reported weaker-than-expected quarterly revenue and issued light current-quarter guidance, as consumers opted to purchase cheaper products, lowering the average selling price in its core retail business.
Although the company’s stock reached a record high last month, investors have been quick to book profits in the weeks since amid growing concerns over increasing competition from discount e-tailers and a slowdown in consumer spending arising from lingering inflation and higher interest rates.
Shares were down 7.9% at $169.50 in recent premarket trading.
Below, we take a closer look at Amazon’s chart and use technical analysis to locate important price levels investors may be watching.
Bearish Engulfing Pattern
Amazon shares have trended mostly higher since the 50-day moving average (MA) crossed above the 200-day MA in May last year to generate a golden cross buy signal. However, after climbing to a new record high last month, the stock promptly shifted into selling mode, raising the possibility of a potential bull trap.
In another bearish development leading into the online retailer’s quarterly results, the price rallied above the 50-day MA in Thursday’s trading session before staging an intraday reversal to close below yesterday’s low, completing a bearish engulfing pattern in the process. This two-bar candlestick formation warns of a shift in market psychology, leading to lower prices.
Monitor These Key Support Levels
Following the stock’s earnings-driven selling, investors should monitor four key price levels that could provide support.
Initially, it’s worth watching if the stock can hold $170, an area on the chart likely to attract buying interest near a confluence of support from the rising 200-day MA and an established uptrend line that joins several prominent swing lows between December 2022 and October last year.
The next location to watch sits just $9 lower at $161, where the shares may find support around a late January peak that formed several days before the Feb. 2 earnings breakaway gap.
An inability to hold this level could see a decline to $145, where buyers may seek entry points near a trendline that links the major August 2022 and September 2023 price peaks with a period of narrow consolidation in November and December last year.
Finally, a deeper correction may see the shares test the $123 region, where they could encounter support from a horizontal line connecting numerous peaks and troughs between July 2022 and October 2023.
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As of the date this article was written, the author does not own any of the above securities.