Technical Analysis – Amazon erases 2021 record rally; bearish but oversold

Amazon’s stock has fully canceled its 2021 record rally in just a week, diving by more than 14% to a 1½-year low of 2,704 on Wednesday.

The freefall in the price has breached the broad sideways trajectory in the market, and the progressing death cross between the 50- and 200-day simple moving averages (SMAs) is a worrying sign that the market could remain trapped within the downward trajectory for longer.

The question that arises at this point is whether the slump is overstretched and a bullish reversal could take place soon. Well, even if the technical indicators reflect a bearish mood in the market, some recovery cannot be ruled out given the Stochastics' rebound in the oversold area and the fact that all oscillators have been knocked down to 16-year lows in the bearish terittory.

Yet, the bulls will have to work hard to recoup the recent sharp decline in the price. First, a close above the support-turn-resistance area of 2,865 will be needed to lift the price up to the 2,948 barrier. Then, a decisive close above 3,000 could be a prerequisite for the stock to reach the limitations around the 20-day SMA and the 3,130 – 3,170 area. Still, long-term traders could remain on the sidelines until the price approaches its record highs within the 3,700 zone.

On the downside, the 2,676 – 2,615 territory may encourage short-term buying activity if selling forces resurface. Otherwise, the door would open for the 2,500 psychological mark, last examined during the May-June 2020 period.

Overall, Amazon’s stock is well dipped in the oversold area, making an upside correction possible in the short-term. That said, a full recovery of the latest aggressive downfall could be a tough job. 
Note that the giant online retailer will release its quarterly earnings on February 3 after the closing bell.

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