Amazon.com, Inc (NASDAQ:AMZN) spiked 1.78% higher at the market open on Thursday when it ran into a group of sellers at a resistance level at $3,131 and dropped over 2% of the high-of-day.
Amazon has spent the past two days consolidating Tuesday’s 4% rally in the form of a double inside bar pattern. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
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The Amazon Chart: Amazon’s double inside bars lean bullish because the stock was trading higher before forming the pattern, but bullish and bearish traders and investors can watch for a break up or down from the mother bar on higher-than-average volume as an indication of whether the pattern has been recognized by the algorithms.
- Amazon is also trading in a confirmed uptrend, with the most recent higher high printed on Tuesday at the $3,172.98 level and the most recent higher low created at the $3,005.01 mark on April 18. If Amazon is able to hold within the mother bar, Thursday’s low-of-day may confirm as the next higher low within the pattern.
- If Amazon closes the trading session on Wednesday at the low-of-day, however, the stock will print a shooting start candlestick, which could indicate lower prices will come on Friday. If the stock closes the session flat or near the high-of-day, it will print a doji or hammer candlestick, respectively, which could indicate higher prices are in the cards.
- Amazon has resistance above at $3131.06 and $3,230.98 and support below at $3,000 and $2,881.
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