AMZN Stock: Bearish Signals Continue to Mount
In September, Amazon.com, Inc. (NASDAQ:AMZN) reached a coveted milestone by becoming only the second company to ever reach a $1.0-trillion valuation. It was not a coincidence that the markets followed suit by forging new highs of their own; AMZN stock is a juggernaut and when it makes headway, it pulls up the entire market with it.
That is why Amazon stock has been dubbed one of the infamous “FANG” stocks: Facebook, Inc. (NASDAQ:FB), Amazon, Netflix, Inc. (NASDAQ:NFLX), and Google-parent Alphabet Inc (NASDAQ:GOOGL). These stocks are alleged to be the pillars of support responsible for sustaining the longest bull market in history.
That is quite a lot of weight to place on a stock’s shoulders, which is why it is quite concerning that Amazon stock continues to generate signals suggesting that lower prices are likely to prevail.
For example, during the last four years, there was an indicator that clearly spelled out that Amazon stock was geared for higher stock prices.
The indicator in question is highlighted on the following AMZN stock chart.
Chart courtesy of StockCharts.com
The focus of the chart above is the moving average convergence/divergence (MACD) indicator, which is located in the lower panel.
MACD is an indicator that determines whether bullish or bearish momentum is influencing the price action in a stock. When a stock is being influenced by bullish momentum, it has a tendency to climb. When a stock is being influenced by bearish momentum, it has a tendency to drop.
This is relevant information because, in order for a stock to maintain a directional move toward either higher or lower prices, the applicable level of momentum is required.
For example, Amazon stock went on an epic run that spanned nearly four years, where it managed to appreciate by 450%. The entire time Amazon stock was appreciating, the MACD signal remained in bullish alignment, always suggesting that bullish momentum was influencing the price action in AMZN stock.
This all came to an end in December 2018, when a bearish MACD signal was generated. This bearish signal is suggesting that the tide has shifted. Bearish momentum is now influencing the price action in Amazon stock, paving a path of least resistance geared toward lower prices.
I place a lot of emphasis on the signals generated by this indicator because it has a tendency to steer me in the right direction. Currently, it is steering me to believe that the AMZN stock price is likely to suffer because lower prices are now likely to prevail.
A standalone indicator is never enough to go on, which is why I have provided the metric highlighted on the following stock chart, which reinforces the implications suggested by the MACD indicator.
Chart courtesy of StockCharts.com
The chart above focuses on the 200-day moving average.
The 200-day moving average is simply the stock’s average closing price over the last 200 days. People use this moving average to determine if the stature of a stock is either bearish or bullish.
Trading above the 200-day moving average suggests that a stock has a bullish stature. Trading below it suggests that a stock has a bearish stature. This is important information because it will help determine whether the price of the stock is likely to increase in value or decrease in value.
For example, ever since, the AMZN stock price broke above the 200-day moving average in January 2015, the stock maintained a bullish stature, and as a result, the AMZN stock price continued to increase in value.
In February 2016, Amazon stock briefly fell below this moving average but it quickly found its footing and regained its bullish stature. Once again, the stock price continued to appreciate.
In November 2018, AMZN lost its footing once again. This time around, it has been unable to regain it bullish stature. As a matter of fact, the 200-day moving average is now becoming a significant level of price resistance.
This inability to regain its position above the 200-day moving average is suggesting that AMZN stock is transitioning from its bullish stature into a bearish one. The longer the stock price remains below the 200-day moving average the more likely the stock price will decrease in value.
The combination of bearish momentum suggested by the MACD indicator and the stock’s position below the 200-day moving average is why I can only assume that lower Amazon stock prices are on the horizon.
I am reiterating my bearish view on Amazon stock because indications continue to mount, suggesting that lower AMZN stock prices are likely to prevail. I will maintain a bearish view until there are indications that suggest otherwise.