Stock Of The Day: Will Amazon Refill The Gap?

Amazon.com, Inc. (NASDAQ:AMZN) shares are trading sideways on Thursday. As you can see on the chart, they gained almost 4% on Wednesday after breaking resistance around the $211 level.

There is a chance they continue to move higher. ‘Gaps tend to refill' is an old adage on Wall Street. It's true, and it may happen with Amazon. This is why it is our Stock of the Day.

In the short term, markets tend to move because of emotions and psychology. This can be seen on price charts.

For example, remorseful buyers created the resistance that was at the $211 level.

These were people who bought shares around $211 when it was support in October. After the stock rallied, they were glad they did.

But when this support broke in February, their positions became losers. Some of these now regretful buyers decided that if possible, they would sell their positions at breakeven.

So. when the stock returned to $211, they placed sell orders. This created the resistance that was broken on Wednesday.

As you can see on the chart, on Feb. 4 and Feb. 5, shares of Amazon ‘gapped' down from around $233 to $211. Because of the speed of the move lower, there was very little, if any, trading at the price levels in between these two.

If there was little or no trading at these prices, there would not be a large group of remorseful buyers who are trying to sell on the way back up. This means there may not be many sell orders at these levels.

This could be a bullish dynamic for the stock.

If new buyers come into the market, they will have a hard time finding sellers. They will be forced to outbid each other and pay higher prices.

This could result in a rapid and large move. Amazon may be about to refill the gap.

Photo: lev radin on Shutterstock.com