There it is. Amazon.com, Inc. (NASDAQ:AMZN) shares just reached the long-ballyhooed $1,000 mark. That makes AMZN stock one of only a handful of stocks above or even near the completely arbitrary four-figure price tag.
Now get out, if you were lucky enough to ride any part of the rally.
With the feat being accomplished, there’s no justifiable “second act” that’s likely to carry AMZN stock meaningfully higher without a significant pullback unfurling first.
That’s a tough idea for most traders to digest, having seen the raw power of sheer momentum, and seeing no reason for that momentum to wane now.
As the old adage goes, though, expect it when you least expect it.
Amazon Is Right on Cue
The abridged version of a long and complicated story: Owning Amazon stock isn’t an investment in an e-commerce giant. It’s a bet on a premise. That premise is a presumption that other traders will be even more enamored by the barely profitable company six months to two years in the future.
That’s not a popular idea, but not because most people don’t believe it. It’s an unpopular idea because most of the market’s participants — and analysts in particular — can’t afford to admit it. Not even to themselves.
There is an upside to this kind of story stock. Sentiment-driven names tend to trade fairly predictably, unencumbered by ideas like earnings or profit margins. It’s a trade, pure and simple, which lends itself to straightforward technical analysis.
And that’s bad news for AMZN stock right here, right now, in the shadow of its trumpet-blasting eclipse of $1,000.
The psychology of big, round numbers is nothing to dismiss. Although the concept is usually reserved for market indices, it still applies to stock … when they actually have big, round numbers to dissect. Simply put, numbers ending with “000” tend to be viewed as subconscious targets, prodding the very buying (or selling) necessary to reach those levels. Now traders have nothing to psychologically latch onto with Amazon, leading to lost interest.
With or without the $1,000 level’s allure unraveling, however, AMZN still would be out of gas.
You have to zoom out to a long-term weekly chart of Amazon to see it, but it’s there. With the move to $1,000, Amazon stock has bumped into a well-established technical resistance levels that extends back to 2015.
As for how far AMZN might peel back, that’s a trickier question to answer.
The 100-day (gray) and 200-day (green) moving average lines are both plotted on the chart above. Each has acted as support before, although both failed to hold back the late-2015 pullback. By and large though, these should at least be respected as potential floors. The former is at $888, and the latter is at $836. Each moving average line is rising though, so adjust accordingly.
Be that as it may, it’s tough to say Amazon stock isn’t overdue for a more serious correction.