Shares of Amazon (NASDAQ:AMZN) have certainly been on a tear lately. AMZN stock has rallied 25% since Christmas after making a low near the $1,300 area, doubling the strong 12% move higher in the S&P 500 in the same time frame. Some of the rebound in Amazon was undoubtedly warranted given the prior panic selling, which took shares too low. In a similar nature, however, the recent buying is also looking like it has reached near panic proportions.
I expect AMZN stock to head lower over the coming weeks.
Amazon is looking decidedly overbought from a technical perspective. AMZN is now trading at the highest momentum reading in the past year with a reading well over 200. In the past, when momentum was so extended, it marked significant short-term tops in Amazon stock. The five-day RSI also just reached an extreme before weakening.
There is major overhead resistance looming at the $1,780 area. AMZN twice tried to break past this critical level only to fail and pull back sharply. The 100-day moving average of $1,743.11 should provide an additional level of resistance. Amazon stock has made lower highs on four consecutive days, another sign the recent bull run may be losing some steam. This is especially true given the strength of the prior red-hot rally.
In my previous research article on AMZN from Nov. 28, I had a more bullish view on Amazon with the stock at the $1,500 level. Now that the stock price has moved sharply higher, the technicals have switched from bullish to bearish. My viewpoint has changed as well because price matters.
Analysts, however, remain extremely bullish on Amazon. According to Tip Ranks, 37 of the 39 analysts covering AMZN rate it as a Buy and only two have it as a Hold. Not one analyst ranks it as a Sell. This type of overexuberance usually is a reliable contrarian indicator, especially as stocks move from oversold to overbought. Plus Amazon no longer has the tailwind of the holiday shopping season to propel it higher.
Given the huge outperformance of Amazon to the overall market and the overbought condition of both Amazon (and the S&P 500 for that matter), I would short AMZN stock at current levels. Look for Amazon stock to retest the $1,500 area over the next few weeks. Earnings are due Feb. 7.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.