Amazon’s stock has fallen enough in the past week to do real damage to its long-term chart – and enough to warn investors that the worst may yet be to come.
But amid market turmoil and worries about how inflation and rapidly rising interest rates could harm the e-commerce giant’s customer base in the coming months, there are also technical indications that suggest that the stock could be approaching an inflection point. .
First, the bad news. Amazon.com Inc. AMZN,
the stock has taken a historic beating since the middle of last week. And for the fifth straight session, the stock erased an early intraday gain of at least 1% to dip into the red.
It rose 3.5% in mid-morning on Friday before flip-flopping to trade down 0.3% in afternoon trade, heading for the longest losing streak in three years. It plunged 26.1% during the streak, which would be the worst performance over an eight-day period since the period that ended November 14, 2008.
The sharp price weakness also comes at a time of negative fundamental developments, as the company reported disappointing third-quarter earnings and an upbeat outlook for the holiday season last week and said it was suspending hiring for corporate jobs while monitoring the outlook for the economy. .
John Kosar, chief market strategist at Asbury Research, said the stock broke below a key support level at $102.53 on the long-term weekly charts.
An old Wall Street adage says that previous resistance, once broken, often turns into support. The stronger the resistance on the way up, the stronger the support on the way down.
The idea is that when investors sell a stock at a certain price and the stock then rises above that price and then falls back to that price, it becomes more likely that those same sellers will repurchase that stock.
For Amazon, the support Kosar refers to comes from the five-year weekly bar chart, with each bar representing the week’s open, close, and trading range.
The $102.53 level marked resistance at the high for the week ending September 7, 2018, which was backed up a month later when the stock peaked at $101.66 before falling around 36 % at Dec 28 weekly low of $65.35. Resistance fended off another rally, with the stock hitting $101.79 in July 2019.
Resistance finally gave way in February 2020 and, after an initial period of decline, sparked a rally that took the stock to its all-time high close in July 2021.
After the post-pandemic rally subsided, previous resistance passed two tough tests of support in May and June 2022, leading to a big rebound in August.
But the latest sale proved too much for support to handle.
With key support broken, “this opens the way down to $81.30,” Kosar said.
This is the low for the week ending March 20, 2020, at the height of the uncertainty and fears related to the COVID-19 pandemic, as well as the low of the pullback before the post-pandemic surge.
Now for the good news.
Adding to the importance of this support, an uptrend line that begins at the January 2015 weekly low and connects to the January 2016 low extends just above $81.
The convergence of two different types of support likely makes this level an even stronger support zone than if they were separated.
A third point on the chart can be charm. The key 61.8% Fibonacci retracement of the uptrend from the weekly low in January 2016 to the weekly all-time high in July 2021 is around the same level.
This retracement level is based on the mathematical Fibonacci ratio of 1.618, also known as the golden ratio given its prevalence in natural systems. Many Fibonacci followers on Wall Street believe that the 61.8% retracement can act as an important chart level because if it breaks, it suggests that the previous trend is no longer intact. Learn more about the importance of the Fibonacci ratio in chart analysis.
Fibo levels are not necessarily areas of natural support, but they can serve as benchmarks, which in times of heightened uncertainty can reassure investors. And the more chart points that appear at a similar level, the more visible they become to potential buyers – especially, perhaps, when the charts are showing a bullish technical divergence.
While Amazon’s stock price has fallen, leading to lower highs and lows, the Relative Strength Index (RSI) has trended higher over the past few months, leading to lower highs and lows. students.
The RSI is an underlying momentum indicator that attempts to depict how the magnitude of recent declines compares to recent gains. When an RSI bottoms out while prices are falling, it suggests that it is taking more and more energy from the bears to drive prices down, and the bulls are getting stronger.
The bullish divergence seen in Amazon’s weekly chart would be classified as the strongest, or “Class A” divergence, as defined by the CMT association.
Technical divergences are not good timing tools because they can last for long periods of time before they are finally resolved. But they tend to resolve in the direction of the technical indicator.
And they can act as a warning not to sell in a bounce, if and when it happens.
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