To gauge how much sentiment has turned this year, look no further than Amazon (AMZN).

When the market was on the way up, AMZN and other big tech stocks were endlessly bid up to ever loftier valuations.

However, this year that all changed…

From November 2021 to its post-Q3 earnings results lows, AMZN has tanked a whopping 49%. Soft Q4 guidance saw AMZN’s stock price plummet as much as 20% after releasing those results.

AMZN is dealing with high inflation and a higher interest rate environment. But it’s also seeing money flow out of once white-hot big tech and into old-economy, large-cap valuation plays.

And the earnings results sell-off put AMZN’s stock below a key support level we discussed back in July.

So, today let’s discuss what’s coming next for the market’s fourth biggest stock…

Retesting Support

The chart below shows AMZN’s long-term downtrend that kicked off in November 2021.

As you can see, the 50-day moving average (MA – blue line) trended strongly down as AMZN made a series of lower highs (A, B, and C)…

Amazon (AMZN)


Source: eSignal

Also, notice the action of the Relative Strength Index (RSI)…

Each of those peaks at A, B, and C corresponded with the RSI reversing from at or near overbought territory (upper grey dashed line).

Then, as the RSI drifted below support (green line) into the lower half of its range, AMZN’s share price fell.

But when we looked back in July (red arrow), we saw that increasing buying momentum in the RSI had enabled AMZN to form a base (orange line).

Since then, two key technical indicators underpinned AMZN’s rally from that support level up to ‘C’…

  1. After breaking through resistance, the RSI was able to gain traction in the upper half of its band.

  2. The 10-day MA (red line) bullishly broke back above the 50-day MA.

However, the RSI reversal from C – along with the 10-day MA crossing back below the 50-day MA – saw AMZN retest that support (orange line) by the middle of October.

Take another look at the chart…

Amazon (AMZN)


Source: eSignal

The support level initially held. And with the RSI forming a ‘V’ out of oversold territory (lower grey dashed line), AMZN started to rally.

However, as the RSI ran into resistance and reversed (red circle), AMZN’s stock price fell…

AMZN’s poor results saw it gap lower and exacerbated that fall.

Now with AMZN breaking below support, what can we expect from here?

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When Support Turns Into Resistance

The longer a support or resistance level holds, the bigger that level becomes. And the bigger deal is when that level fails.

We also know that when a price breaks through support, as is the case with AMZN, that price level can subsequently turn into resistance (and vice versa).

And that’s why I’m watching AMZN so closely around here…

As you can see, the RSI has just gone into oversold territory.

For AMZN to have any chance of breaking back above resistance, we’ll first need to see the RSI bounce strongly out of this territory.

If the RSI rebounds but fails to break above resistance – remaining stuck in the lower half of its range – then the more likely it is that the orange line will become a stronger resistance level…

And that AMZN still has further to fall.


Larry Benedict
Editor, Trading With Larry Benedict

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