This Is Why AMZN Stock Is Likely to Suffer Further Losses in 2019…

AMZN Stock: The Tide Has Shifted

2019 is fast approaching and I am sure many are wondering what it has in store for investors. 2018 is ending in horrific fashion, on pace for the worst December since the Great Depression. This does not exactly bode well for things going forward.

In an effort to speculate on what 2019 is shaping up to look like, I am going to use the Amazon.com, Inc. (NASDAQ:AMZN) stock chart as a proxy for what is likely in store for the markets in 2019.

Amazon stock is one of the infamous FANG members: Facebook, Inc. (NASDAQ:FB), Amazon, Netflix, Inc. (NASDAQ:NFLX), and Google-parent Alphabet Inc (NASDAQ:GOOG).

These technology stocks have been the leaders and pillars of support in this incredible bull market we have been experiencing, which has now spanned a decade.

AMZN stock is also one of the infamous few that have been able to reach a $1.0-trillion market cap. So it is fair to say that it is fitting that I am using the Amazon stock chart as a proxy of what is to come.

Let’s start with the good news: Amazon stock is still within the confines of a bullish trend. This bullish trend is captured on the following AMZN stock chart.

Chart courtesy of StockCharts.com

This Amazon stock chart captures price action consisting of a series of higher highs and higher lows. This price action is the quintessential characteristic that defines a bullish trend.

I connected the series of higher lows that defines this bullish trend in order to create an uptrend line. This uptrend line is a simple tool that is used to pinpoint where significant levels of price support reside.

Using this tool is quite easy because it acts like a dividing line that separates Amazon stock and its current bullish trend from a potentially bearish one.

So, it is fair to say that as long as AMZN stock is trading north of this uptrend line, one can only assume that a bull market is in development. As a result, higher stock prices should prevail over time.

At this moment, the uptrend line is being put to a test, which is where the bad news comes into play. There is a very influential momentum indicator on the verge of generating a bearish signal that would imply that lower AMZN stock prices are likely to prevail. Therefore, the uptrend line is ultimately not likely to hold.

This influential momentum indicator I am referring to is captured on the following Amazon stock chart, which uses monthly data points.

Chart courtesy of StockCharts.com

The chart above focuses on an indicator known as the “moving average convergence/divergence” indicator, or MACD for short.

This indicator uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock.

Momentum paves the path of least resistance, which is why bullish momentum implies that higher prices are likely to prevail and bearish momentum implies that lower prices are likely to prevail.

I place a lot of emphasis on the signals generated by this indicator, and the example on the chart above is a testament to its significance.

In March 2015, a bullish MACD signal was generated, indicating that bullish momentum was influencing the price action in AMZN stock.

This marked the beginning of a move that spanned over three-and-a-half years, whereas Amazon stock went on to appreciate from the low $300.00’s to a high of $2,050.55.

During this entire run, the MACD indicator remained in bullish alignment, always suggesting that bullish momentum was influencing the price action in AMZN stock.

This indicator is now on the verge of generating a bearish MACD signal. As I mentioned, the chart uses monthly data points. As a result, a bearish MACD signal will be generated when the month closes out.

This will suggest that the tide has shifted and that bearish momentum is now influencing the price action in Amazon stock. Meaning, lower prices are likely to follow. This puts the uptrend line at risk and suggests that the bullish trend is due to change course.

It is not just the MACD indicator that is suggesting that the tide is turning. The indicator captured on the following stock chart is also reinforcing this development.

Chart courtesy of StockCharts.com

The AMZN stock chart above focuses on a signal that is created when the 50-day and 200-day moving averages cross.

When the 50-day moving average crosses above the 200-day moving average, it creates a bullish signal called a golden cross. It indicates that a bullish trend has begun its development.

When the 50-day moving average crosses below the 200-day moving average, it creates a bearish signal called a death cross. It indicates that a bearish trend has begun its development.

The chart above illustrates that, in February 2015, a golden cross was generated. True to its nature, a bullish trend did follow. For the next three-and-a-half years, the moving averages that created the golden cross remained in bullish alignment. With it, a bullish trend flourished.

At this moment, the 50-day moving average is crossing below the 200-day moving average, generating a death cross. This bearish signal is suggesting that the tide has shifted and that a bearish trend has begun its development.

The death cross and the bearish MACD signal are suggesting that AMZN stock, the last of the titans that make up the infamous FANG stocks, is likely to roll over in 2019.

If the likes of Amazon stock is slated for lower prices in 2019, it is fair to say that the outlook for the markets is also grim and that the major market indices are likely to continue being inundated with selling pressure.

Analyst Take

There are a number of indications suggesting that the trend that was so kind to Amazon stock investors over the last four years is drawing to an end and that lower prices are likely to follow.

Given the weight AMZN stock carries in a number of major market indices, this also suggests that the markets are likely to endure further selling pressure in 2019.