Calling tops in the market is a fool's game and calling a top in Amazon (AMZN) - Get Report is insane. I have no intention of doing either, but I will point out some potentially bearish price action on the Amazon charts that could be signaling a pullback over the short term.
The weekly chart shows the incredible performance of the stock in 2015, when it rose over 138% off its low of the year to its high that December. That bull run was immediately followed by a 30% percent drop in the first two months of 2016, and then a 78% rally to its 52 week high this month.
The stock has traded off slightly since that time, and the price action over the previous three weeks has formed an evening star pattern on the chart. An evening star is a three-period bearish reversal formation that consists of a large white "up" candle, followed by a narrow opening and closing range "doji" candle, and completed by a large dark or "down" candle, and it represents a transition from bullishness to bearishness. Like all technical patterns it requires confirmation in the form of follow-through price action and several days of weakness in a stock of Amazon's caliber is not it, but there are some initial signs of technical weakness.
The relative strength index is moving lower and out of an oversold condition, and moving average convergence/divergence has been tracking lower in bearish divergence to the stock price, both signs of deteriorating price momentum. Chaikin money flow is still well into positive territory but has recently crossed below its 21-period signal average, and the money flow index, a volume-weighted relative strength measure, is moving out of a previously oversold condition. These are very early signs of a slow down in positive money flow.
On the daily time frame a small rounded top has formed and the relative strength index has moved down to its center line and moving average convergence/divergence made a bearish crossover. The vortex indicator, which is designed to identify early shifts in trend, is attempting to make a bearish red line over green line crossover, but it is far too early to consider even a short term change in trend direction. The daily money flow readings are very similar to the weekly money flow readings, just further along in their decline.
The stock looks like it is nearing a test of $590, an area of support reinforced by the four-month uptrend line and the rising 50-day moving average. A break below this level has the potential to retest the 200 day moving average which would constitute a 19% decline off the highs of the year.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.