Amazon(AMZN) stock has been one of the stock market wonders of the year. It was trading near $310 at the start of 2015, but climbed above $680 a week ago. Many analysts say investors should wait for a pull-back, instead of buying right now. We agree with that. In addition, we believe Amazon is ready for the correction everyone has been waiting for. The chart below explains why.
The logic behind the Elliott Wave Principle is quite simple. Trends move in five-wave sequences, called impulses. Every impulse is followed by a correction in the opposite direction. That’s it. Now, take another look at the chart. There is a nicely-looking impulsive advance from $451 where wave 1 starts to $682 where wave 5 seems to have ended. So, we should expect a retracement. This assumption is further supported by the RSI indicator, which is showing a bearish divergence between the tops of waves 3 and 5. The anticipated pull-back is likely to reach the end of wave 4, where the first support area lies. Those, who want to get into Amazon stock, should wait for prices to fall between $640 and $620. Amazon stock might lose another $30-$40 before the bulls return.
