On the first day of the last month of 2015 we published “Amazon Seems Ready For a Pull-Back”. We thought it was time for the bulls to take a rest, because there was a complete five-wave impulse on the 4-hour chart of Amazon(AMZN). According to the Elliott Wave Principle, every impulse is followed by a correction in the opposite direction. That is all. The next chart shows how the forecast looked like more than a month ago.
As visible, while Amazon was trading above 665.00 dollars a share, we were expecting the stock to fall to the area between $640 and $620, before the bulls return. In addition, there was a bearish divergence with the RSI indicator, which further supported our negative outlook. Now let’s check how Amazon stock has been developing in December, 2015.
Two weeks after the forecast, on December 14th, Amazon plunged to the previously-mentioned area, falling as low as 635.50. Then, the support area did was it was supposed to. Soon after that, prices started rising again. On December 29th, 2015, Amazon climbed to a new all-time high of 696.37, thus fulfilling the forecast.
So far so good. But what happened next? January 4th, the first trading day of 2016, brought havoc to stock markets all over the world. Amazon in particular, suffered a massive sell-off to $627.61 yesterday, after opening with a huge gap to the south. The question is where does it fit in the bigger picture?
If we take another look at the chart above, it seems like the decline, which took place during the first half of December 2015, and yesterday’s bloodbath are two parts of the same larger pattern – an expanding flat correction. If this is true, Amazon should start recovering soon, because once a correction is over, the larger trend resumes. Furthermore, there is a rising trend line, which could also provide support.
In conclusion, the bulls should not give up on Amazon yet, because the stock is likely to turn up again and finally reach the 700-dollar mark.
