Watch These Amazon Price Levels as Stock Drops on Cloud Revenue Miss, Tepid Sales Outlook

Amazon (AMZN) shares lost ground in extended trading on Thursday after the tech giant reported cloud computing revenue below expectations and issued a tepid outlook for the current quarter.

While the company’s Amazon Web Service (AWS) cloud unit revenue grew 19% in the fourth quarter to $28.79 billion, it came in below the $28.87 billion expected. CEO Andy Jassy told investors on the earnings call that the unit’s growth had been held back by the inconsistent flow of chips from its third-party partners.

Looking ahead, the company’s revenue forecast for the first quarter also fell short of Wall Street expectations, with executives saying the outlook reflects a significantly unfavorable impact from foreign exchange rates. 

Amazon shares have gained roughly 9% since the start of the year as of Thursday’s close and trade more than 40% higher over the past 12 months, handily outpacing the S&P 500’s returns of 3% and 23%, respectively, over the same periods.

Below, we take a closer look at Amazon’s chart and use technical analysis to identify key post-earnings price levels that investors may be watching.

Rising Wedge in Focus

Amazon shares have trended higher in a rising wedge since July last year, with the price finding support multiple times near the pattern’s lower trendline and 50-day moving average (MA).

During recent trading sessions, the stock has traded towards the wedge’s upper trendline but was unable to stage a decisive breakout ahead of the company’s quarterly results.

Moreover, as the shares set a record high earlier this week, the relative strength index (RSI) failed to also register a new high, creating a bearish divergence between the price and indicator, a technical signal pointing to waning buying momentum. Indeed, Friday’s projected lower open sets the stage for a possible retest of the rising wedge pattern’s lower trendline.

Let’s identify three key support levels to watch and also point out a measured move price target to monitor if the stock resumes it longer-term uptrend.

Key Support Levels to Watch

Firstly, it’s worth keeping an eye on the $230 level. Although the stock is projected to open slightly below this price on Friday, the area may attract buying support near the rising wedge pattern’s lower trendline.

The bulls’ inability to defend the above level could see the shares slip to around $216. This area on the chart may provide support near the November peak and January trough.

A more significant correction brings the psychological $200 round number into play. Investors could seek to accumulate shares in this region near the early July swing high and late November swing low, an area which also sits in close proximity to the upward sloping 200-day MA. 

Measured Move Price Target to Monitor

Investors can forecast a price target to monitor if the stock resumes its longer-term uptrend by applying the measured moved technique, also known by chart watchers as the measuring principle.

When applying the method to Amazon’s chart, we calculate the depth of the rising wedge and add that amount to the pattern’s upper trendline. For example, we add $50 to $240, which projects a target at $290, a level where investors may consider locking in profits.

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As of the date this article was written, the author does not own any of the above securities.