One of the strongest performers in the market this year has been tech giant Amazon (AMZN)…
The e-commerce and cloud computing company peaked last month. This peak represented a near-80% gain for it since January.
Showing the strength of buyers’ conviction, AMZN rallied for almost two months after the Nasdaq topped out in mid-July.
After hitting that peak on September 14, however, AMZN fell almost 20% in a month and a half.
Yet AMZN has gapped higher after its Q3 earnings beat last Friday. So today I want to see what’s coming next…
Amazon’s Counter-Rally Failed
The chart of AMZN below shows its huge turnaround from the end of last year.
Coming into the end of 2022, the 50-day moving average (MA, blue line) was falling heavily. This downtrend saw AMZN lose 57% from its 2021 peak.
Amazon (AMZN)
Source: eSignal
Buying momentum slowly returned. And AMZN formed a base to rally at the start of the year.
That rally continued to build momentum as the relative strength index (RSI) gained a foothold in the upper half of its range (above the green line).
Amazon dipped in March after a false break higher into February. That did briefly drive the RSI lower. But the RSI remained in its upper range for the remainder of AMZN’s rally.
The action of the two MAs added to the bullish sentiment.
The 10-day MA (red line) crossed above the 50-day MA in March. Both of them then tracked higher.
But after hitting its peak in September at “A,” AMZN retraced along with two bearish signals:
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The RSI reversed sharply from near-overbought territory. AMZN’s pullback developed further as the RSI fell back into the lower half of its range.
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The 10-day MA crossed sharply below the 50-day MA. Since then, the 50-day MA has also slowly started to roll over.
Take another look:
Amazon (AMZN)
Source: eSignal
AMZN tried to counter-rally in September, but that move petered out when the RSI couldn’t break up through resistance.
At the time, Amazon briefly touched the 50-day MA. But it was unable to break above it.
Since then, the RSI has tried to break higher several times but remains stuck in its lower range (orange circle).
Now the RSI is pushing up against resistance again. So what am I looking for next?
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When Support Becomes Resistance
The most immediate thing I’ll be watching this week is the action of the RSI.
Unless the RSI can break back into its upper band, AMZN’s recent bounce has little chance of developing into anything bigger.
Instead, dwindling momentum will continue to weigh down the stock.
Beyond that, I’ll also be closely watching the 50-day MA.
When AMZN was rallying, it touched the 50-day MA multiple times without falling below it. You can see that in April, July, August, and September.
With AMZN rolling over since then, I’ll look for the opposite from here…
If AMZN can’t break above the 50-day MA, that will add more evidence that AMZN’s current pullback has further to go.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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