For the past five months or so Amazon (AMZN​) has been moving effectively sideways and consolidating near record highs. Given the developing chart pattern it is now at risk of falling into the biggest correction in over one-and-a-half years.

Let’s first look at the monthly chart below. Here we see that as of the July $1,083.31 record high Amazon had advanced 281.4% off its October 2014 low of $284. That high is in a long-term potential resistance zone identified by a confluence of Fibonacci ratio resistance levels. All are projections of prior monthly swings starting with the larger 261.8% extension of the 2006 low to January 2014 peak.

Then we have a bearish monthly reversal candle in July, where Amazon breaks out to a new record high but quickly reverses to close in the bottom third of the months range. Plus, the weak close happened in only a couple days following the record high. This is bearish behavior on a long-term monthly chart and therefore has greater significance to the future share price than if it occurred on a weekly or daily chart. The reversal price behavior can be seen more clearly on the daily chart below.

Last week the right shoulder of a bearish potential head and shoulders topping pattern was formed giving further validity to a potential reversal or at least a noticeable correction in the long-term uptrend. In late-2016 the stock saw an approximate 16% decline and back in January 2016 a better than 30% dip. It looks like this next correction, if it is to occur, has a reasonable chance of falling at least 25% below the July high.

Amazon closed at $955.10 last week, putting it 13.6% below the July high. Note that the stock is also flirting with support around the 100-day exponential moving average, which is the magenta line on the enclosed daily chart.

A bearish breakdown of the head and shoulders top is triggered on a decisive move below the most recent swing low of $936.33. That puts it at a three-month low and if it drops below $927.80, a five-month low.

Amazon then heads towards the prior zone of resistance (now potential support) around the October 2016 high of approximately $847. That price zone has a good chance of being reached if not exceeded as the minimum target based on the measurement of the topping pattern is lower, around $789.35. Moreover, the 61.8% Fibonacci retracement of the most current upswing, starting from the November 2016 low, is close by at $852.67. The head and shoulders target gains credibility once the 78.6% Fibonacci retracement is identified as it comes in at almost an exact match of $789.97.

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