In early August, Amazon stock dived below its long-term 200-day moving average during the sharp market sell-off. But the e-commerce giant and Magnificent Seven stock has rebounded sharply over the last month, poised to hit a new buy point.
Amazon Stock Triggers Sell Rule
On Aug. 2, Amazon.com breached its 50- and 200-day lines in heavy volume, triggering sell signals, after the company's mixed second-quarter results sparked heavy selling.
Earnings beat expectations, but revenue came in short of projections, despite a stronger-than-expected contribution from Amazon's cloud computing division. The company's sales forecast was also lower than expected.
Amazon said it earned an adjusted $1.26 per share on sales of $148 billion for the June-ended quarter. On average, analysts expected the Seattle, Wash.-based company to post $1.03 per share on sales of $148.67 billion, according to FactSet.
In early September, Amazon stock started trading back above its 200-day moving average. At the time, JMP Securities analysts raised their price target, citing the company's "robust advertising tech stack" and expected growth for its ad sales. JMP Securities reiterated a market outperform rating, hiking their price target to 265 from 245.
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On Sept. 11, Amazon stock decisively regained its key 50-day moving average, further improving the chart. Amid more gains in recent weeks, shares are now forming a cup base with a 201.20 buy point, according to IBD MarketSurge chart analysis.
As such, the stock's Relative Strength (RS) Rating has improved to a solid 81. One week ago, it was 70 and two weeks ago, it was an unacceptable 61. IBD recommends focusing on stocks with at least an 80 RS Rating.
Further, the up/down volume ratio has improved to a neutral 1.0 with an Accumulation/Distribution Rating of B. On Sept. 9, those were 0.8 and D+, respectively.
In a silver lining, Amazon's July and August sell-off undercut the prior base, formed in May and June. That reset the base count.
Finally, the relative strength line has improved from its recent lows, but still remains off its 52-week high, which was set back in April. That represents underperformance vs. the broad market over the past five months. Watch for the line to approach new highs if the stock breaks out to new highs.
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