Amazon: Why $1,600 Is the Line in the Sand

Amazon (AMZN) shares struggled on the first day of February.

Thursday night, the company reported an earnings per share beat of $0.34 on fourth-quarter EPS of $6.04 and revenue of $72.4 billion.

The issue comes in the form of company guidance, though.

Management guided both revenue and operating income lower for the first quarter of 2019. Amazon still expects low double-digit growth versus a year ago but FOREX, India, a ramp-up in the company's investment cycle, and macro headwinds are all working against it.

Still, it's tough betting against a company set to pull in one-quarter trillion dollars in revenue. The biggest challenge facing Amazon bulls might be with its chart setup.

On the daily view, below, Amazon is trading in a consolidation pattern after the big bounce over the past six weeks. This is a similar pattern to most other stocks from then until now. Unfortunately, Friday's selloff creates a stronger resistance level at Thursday's close.

The current pattern now reflects similar action that kicked off December. Any rally may find traders from January simply looking to get their money back as many now sit underwater.

It won't help that secondary indicators are rolling over in a bearish manner. Momentum and trend have now turned bearish. The $1,600 level looks huge as it is both the support level before the recent moves lower as well as the 50-day simple moving average. That appears to be the line in the sand for Amazon. A close below $1,600 and I would expect another 6-8% downside.

The weekly view, below is truly a concern. Amazon has a series of lower lows and lower highs with the lows being outsized moves as compared to the highs. Again, we see the $1,600 level for the 10-week simple moving average (basically the same as the daily 50-day SMA).

Adding to the challenge, the 21-week SMA now corresponds with the declining resistance level on the weekly chart. The good news is the stock wasn't overbought and this is only a single candle.

The impact on secondary indicators is minimal, but I still view the $1,600 level as key. If bulls can maintain price above $1,600 for the first half of February, then we could see a tight range develop with the potential for a squeeze higher on a move above $1,670.

Overall, I'd side with the bears in the short-term on a technical basis. Fundamentally, Amazon is a difficult breakdown. At any time, it could make a game-changing acquisition. I wouldn't consider a short side trade until it broke $1,600. Even at that stage, I could maintain a very small and disciplined trade approach.

At the time of publication, Collins had no positions in the securities mentioned.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long AMZN.