Stock Of The Day: Is Amazon's Run Setting Up For A Cooldown?

Shares of Amazon.com, Inc. AMZN are trading slightly lower Monday. This comes after a recent surge over the past week.

Now, the stock is overbought. That means there is a good chance there will be some profit-taking or selling over the next few days, which could influence the entire market. This is why our expert team of technical analysts has made it our Stock of the Day.

Most of the time, a stock stays within its average or typical trading range. If investors are aggressive and push it above this range, it is said to be overbought.

This is important because it will draw sellers into the market. They will be anticipating a reversion to the mean or move lower. Their selling could put pressure on the stock.

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The lower part of the chart is the Relative Strength Momentum Indicator (RSI). If the blue line is above the horizontal red line, it indicates overbought conditions. As you can see, that's the case now.

When Amazon became overbought on Nov. 13, a meaningful selloff followed. After becoming overbought on Nov. 7, a small selloff followed.

If Amazon does head lower, there is a good chance it will affect the broader market.

After the past week, most of the 11 sectors that make up the S&P 500 Index have been neutral. They have been trading sideways.

The one sector that has been outperforming has been the consumer discretionary sector, which is now overbought.

Amazon and Tesla, Inc. TSLA dominate this sector. Amazon makes up 23% of it, and Tesla is 18%. They are overbought, while the rest of the sector is neutral.

So, it is a situation where one sector has driven the market higher, and it is because of just two stocks within the sector. This means if these stocks reverse, the sector will reverse, and that could bring the broader market lower.

The S&P 500 is composed of 11 sectors. At different times, different ones are in the driver's seat of the broader market.

Consumer discretionary is in charge now. There is a good chance that a reversal in Amazon could move it lower. And it could take the broader market with it.

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