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This Technical Analyst Expects Amazon's Stock To Make A U-Turn

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This Technical Analyst Expects Amazon's Stock To Make A U-Turn
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Shares of Amazon.com, Inc. (NASDAQ: AMZN) traded north of $2,000 per share for the first time Thursday and are flirting with with a $1-trillion market cap. 

One technical analyst is cautioning investors that the stock is more likely to move down than up and approach bear territory.

The Analyst

Mark Newton, a technical analyst at Newton Advisors, discussed Amazon's stock on CNBC.

The Thesis

Amazon shares crossed the $2,000 threshold after the open Thursday. The stock needs to add around $30 billion in value to hit the $1-trillion market cap milestone.

A look at the charts makes it difficult to justify continued upside, Newton said during a recent CNBC "Trading Nation" segment. 

Amazon's relative strength index — a tool to measure if a stock is overbought or oversold — stands at 89.5, which is the highest it has been since the late 1990s, the analyst said. 

Taking a more near-term look at Amazon's chart flashes similar warning signs, Newton said. From a weekly perspective, Amazon's RSI has hit 75 six times since 2015, and in five of those six instances the stock lost anywhere from 10-20 percent in the two-to-three-month period that followed.

While "nobody disagrees with the longer-term" outlook for Amazon, a technical analysis suggests new investors may want to reconsider buying in at current levels, he said. If the RSI trends seen in the past repeat themselves, shares of Amazon could fall to $1,650, which implies a 17 percent drop and close to the 20-percent decline required to put the e-commerce stock in bear territory. 

"$1,650 is a level I want to buy it before $2,500," Newton said. "I think it goes down first."

Price Action

Amazon shares hit $2,004.22 after the open Thursday and were trading down slightly at $1,997.54 at the time of publication.

Related Links:

'Margins To The Rescue' After Amazon Misses Q2 Sales Estimates

Morgan Stanley Lifts Amazon's Price Target To $2,500, Bullish On Waymo's Prospects For Alphabet

Photo courtesy of Amazon. 

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