The Bears Still Hold Amazon Tight But Here's Why A Bounce Is On The Horizon

Amazon.com, Inc AMZN was trading flat on Tuesday despite S&P 500 opening slightly lower.

The tech giant has performed poorly this year, declining almost 50% from the Jan. 3 opening price of $167.55 to trade near the $85 level. Growth stocks have been negatively impacted by soaring inflation and steeply rising interest rates, which caused consumers to tighten their spending.

Bearish sentiment has dominated the stock market this year, but because the market moves in cycles, the bulls will eventually gain back control.

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Although there’s currently no definitive sign the bear market is coming to an end, Evercore ISI Group sees Amazon doubling in price within the next year. On Monday, the firm maintained its Outperform rating and lowered its price target from $170 to $150.

While the bears haven’t shown many signs of weakness over the longer-term, Amazon is likely to bounce over the next few trading days because the stock has lost 10% since opening on Dec. 13, without bouncing to print at least a lower high on the daily chart.

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The Amazon Chart: Amazon’s most recent downtrend started on Nov. 15, with the most recent lower high formed on Dec. 13 at $96.25 and the most recent confirmed lower low printed at the $87.48 mark on Dec. 7. On Monday, Amazon created a new 52-week low of $84.51 and printed a bearish Marubozu candlestick, which suggested there could be more downside before a bounce.

• A bounce is likely to come soon because Amazon’s relative strength index (RSI) is measuring in at about 33%. When a stock’s RSI nears or reaches the 30% level, it becomes oversold, which can be a buy signal for technical traders.
• Bullish traders wanting to play a bounce on Amazon will want to see the stock eventually print a bullish reversal candlestick, such as a doji or hammer candlestick, on at least the four-hour chart. Bearish traders want to see Amazon quickly fall under Monday’s low-of-day, which could indicate a steeper decline is on the horizon.
• Amazon has resistance above at $86.75 and $89.03 and support below at $84.25 and $80.

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