An astute TSC member asked if Amazon was forming a Head & Shoulders chart pattern. A Head & Shoulders chart pattern is a bearish chart pattern that usually ends up in a nasty sell-off. The pattern has 2 shoulders and a head in the middle. Here is an illustration of a basic Head & Shoulders chart pattern.

So if Amazon is potentially forming this bearish chart pattern, it could be time to lock in gains if you haven’t already. But before I get ahead of myself, let’s review a couple of charts and see if that question can be answered.

Amazon’s Head & Shoulders Chart Pattern

This first chart for Amazon (AMZN) is a 3 year weekly candlestick chart. I will start with a weekly chart since I feel that chart patterns are best looked for using weekly candlesticks.

When I look at Amazon’s chart, I definitely see a Head & Shoulders chart pattern that the TSC member inquired about. Nice job on the analysis! Amazon has already formed the second shoulder and is currently sitting right on its neckline.

Fibonacci Extension Tools are one of the most important tools in my toolbox. The high for Amazon’s share price reached during the week of July 24, 2017 was calculated EXACTLY by a Fibonacci Extension Tool. I mean to the penny.

Remember, the 3 areas to watch for reversals or corrections when using a Fibonacci Extension Tool are the 61.8%, 100% and the 161.8% Target Lines.

With AMZN’s share price sitting right on the neckline, is it going to find support or continue the selling? The[s2If !current_user_can(access_s2member_level1)]……

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I continue the discussion regarding the Head & Shoulders chart pattern for Amazon (AMZN). Downside price targets are calculated for the pattern based on a confluence of bearish factors. I also discuss the amount of time required to let Amazon consolidate before purchasing shares to go long again.

If you are not a Trendy Stock Charts member, consider joining today! There are several different subscription plans available.[/s2If][s2If current_user_can(access_s2member_level1)] MACD Histogram indicates that a break of the neckline is very probable. I would call it almost definite. And I say that because of the next section talking about the Shooting Star candlestick pattern. Read on.

AMZN – Shooting Star Candlestick

This next chart is a 5 year monthly candlestick chart for Amazon (AMZN). A Shooting Star candlestick pattern developed on AMZN’s chart, a definite bearish signal. I discuss trading strategies for Shooting Star candlestick patterns on its webpage.

The Shooting Star candlestick pattern would be the “head” in the Head & Shoulders chart pattern. On top of that, the candlestick also appears to be at the very top of a Wave 5 in a Bullish Impulse wave pattern.

From an Elliott Wave perspective, look for the Wave 4 area in the Bullish Impulse wave pattern to provide support. I highlighted that area with the gray shaded box and then carried it over to the right for monitoring.

With some buying momentum remaining on the MACD Histogram, AMZN’s share price could rebound and allow you to sell at higher share prices. Chances are that this scenario only plays out with a good earnings report and guidance.

There is also a chance does remain for AMZN to reverse course soon and make one final push towards the $1139 area. That remote chance is not one I think you should trade or “wait to see” if it develops. Instead, focus on trimming shares and locking in gains. A push to the lower end of my gray shaded box will not be pleasant if you are still long and holding shares.

AMZN – Point & Figure

A Point & Figure chart can help provide for guidance when you are uncertain with other techniques.

High/Low Chart – $866 bearish price objective

Closing Chart – $881 bearish price objective

Both of these bearish price objectives indicate a correction to the top area of the gray shaded box I identified above.

Amazon’s Head & Shoulders Chart Pattern Summary

Nice job on identifying Amazon’s Head & Shoulders chart pattern Sparky! Amazon’s Head & Shoulders chart pattern is for real. AMZN’s share price appears poised to enter into a consolidation for an extended period of time. It potentially needs time to consolidate the Bullish Impulse wave pattern that took 2.5 years to complete to the upside.

Because of the other bearish analysis, it appears almost certain that AMZN is going to break through its neckline from the Head & Shoulders. While the Point & Figure charts have bearish price targets approx. 10% lower than the current price, a longer consolidation period could bring AMZN’s share price down to lower levels.

Because of the Shooting Star candlestick pattern, I would not be in a hurry to enter into a long position in Amazon. If you haven’t already, its time to lock in profits and watch Amazon’s Head & Shoulders chart pattern continue developing from the sidelines.

If one is adventurous, they could even consider shorting Amazon. A short position would be entered into after a break below the neckline occurs on selling volume that is above average trading volume. When an attempt to re-take the neckline fails, that is the time to then enter the short position. If anyone is interested in learning more about how to trade this to the short side, let me know below or in the Idea Chamber.

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