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Too Early to Buy the Amazon Dip

Amazon stock was one of the biggest losers following the U.S. election. Shares plunged to as low as 710 dollars a share on November 14th, but truth is the bulls gave up much earlier – on October 6th – when Amazon reached its all-time high of $847. Fortunately, some might think, Amazon has recovered some of the losses and closed at $766 yesterday, December 19th. So, two questions arise – is the pullback over, and if yes – should investors buy the dip? The hourly chart of Amazon stock, shown below, might help us find some answers.
amazon-20-12-16
Above we see the price behavior since the October top at $847. As visible, the decline to $710 has a five-wave structure, meaning it is an impulse. According to the Elliott Wave Principleimpulses show the direction of the trend. Five waves down means Amazon’s trend has changed direction and is pointing south, at least in the mid-term. We believe the decline to $710 is wave (A) of a simple (A)-(B)-(C) zig-zag correction, which interrupts the larger uptrend. If so, the current recovery does not mean that the uptrend has resumed. In our opinion, it is supposed to be wave (B) of the three-wave pattern. Wave (B) should also consist of three waves, so Amazon stock is likely to reach the $800 mark again, but instead of joining the bulls, we should get ready for the third phase of the corrective sequence – wave (C) down – whose targets lie below $710. Even if the 61.8% Fibonacci level fails to act as resistance, the above-shown bearish scenario would remain valid as long as $847 holds.



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