Amazon has been one of the stellar performers of the first 20 years in this decade. That is not news. But one of the odd things about Amazon is that the stock is starting to test major 5-year trend lines.
I have added two indicators onto this chart. The top one is called an area chart and is purple in color. This is a relative strength comparison of Amazon and the S&P 500. When this trend is higher, AMZNWealth Strength IndexAAPL is Extremely Up and trending Up is outperforming the $SPX. Currently, the stock is underperforming and made the relative strength high in late September 2018. That’s a little odd for a stock that still has a lot going for it. The long red line on the area chart suggests Amazon is still in a big uptrend of outperformance compared to the $SPX.
If it starts to break that long-term trend line, that would make me pause.
Secondly, the price is currently testing the big uptrend off the 2015 low. These trend lines are a good place to look for the stock to bounce as you can set a stop relatively close. The is one way of trying to buy pullbacks.
Lastly, the lower chart still shows price momentum leaking out of the stock. Amazon usually stays above zero on this indicator, but the legend shows the PPO line is negative. That is rare. Looking across the history of the stock, AMZNWealth Strength IndexAAPL is Extremely Up and trending Up is rarely this low over a 20-year period.
The way I would look at the stock now is to watch for a bounce off the trend line. If it cannot start to bounce, I would not enter and the momentum on the PPO is still pointing down. I would at least wait for some upward price movement to turn the indicators into an uptrend before taking the trade for anything other than a short-term trade.
The big picture is that the indexes are weak. It would not be a surprise to get a bounce after watching the DOW drop 1000 points in three days. If the indexes cannot start to trend higher over the next few weeks, I would avoid these large cap names s selling in the indexes usually involves the large caps pulling back.
It’s a cautious time but if Amazon can start to turn up here on the price chart, I would like the purple area chart to break the down trend since July suggesting new interest. The PPO would need to turn up and at least cross the signal line to suggest things are getting better.