Key Takeaways
- Thursday’s rise lifted S&P up to resistance at 4303- While it’s possible a bit more upside can happen on Friday, the risk/reward for trading longs is growing poor
- AMZN analyzed after Thursday’s post earnings breakdown
- US Dollar surge vs Yen has reached highest levels in 20 years
The S&P bounce got right to 4303 in Futures before reversing course, and upside from here likely should prove limited technically before weakness reasserts itself and SPX reverses back lower to challenge and break February lows. The hourly chart below shows how this bounce has transpired over the last couple days as part of the larger downtrend from April. Overall, while Technology is the only major S&P sector to show positive performance this past week, Tech remains under pressure, and lower by nearly 8% in the rolling 1-month period ending 4/28/22. Given one final day remaining in the week and month, S&P is set to close down 6.29% for the month, -10.04% for the Year and lies currently -11% off All-time highs. Bottom line, momentum remains negatively sloped and breadth remains poor. Thus, recent strength is thought to prove temporary only before prices move back lower to challenge lows.
Amazon drop likely extends into May/June before serious bottom
Following a lengthy consolidation going back nearly two years, AMZN looks to be finally breaking down under support given Thursday’s earnings miss. This was the first loss since 2015 as sales slowed, costs rose, and its investment in electric vehicle company Rivian erased its profits. Technically speaking, momentum is negatively sloped but not oversold given the consolidation and bounce attempts since January.
Breaks of January lows likely lead this weakness to equal the length of the decline from November which should target 2377 as the first meaningful level. Additionally, going back to 2008 low and measuring Fibonacci ranges of the low to high range, this shows the first meaningful 38.2% Fibonacci support at 2346. Thus, I expect 2346-2377 is the first area of importance on this weakness that could offer support.
Below that, though not immediately expected, AMZN should have serious support on weakness near 1900 which is near a 50% absolute and relative retracement of its entire rally going back nearly 15 years. Overall, AMZN’s post market weakness on Thursday has taken the stock down more than 10% after hours, so it looks early to expect a meaningful rebound given this weakness to only 2609 (as of 6pm EST)
Amazon’s weekly chart has started to deteriorate and has broken long-term uptrends going back since 2008, and even 2001.
The break of support going back to Summer 2020 takes on more significance given the fact that longer-term uptrend lines extending back to 2008 were broken and arguably going back since 2001 on long-term logarithmic weekly charts.
Momentum started to gradually wane given how lengthy of a sideways pattern began after the runup in the last 20 years. Now this breakdown likely causes momentum to continue lower and the price acceleration could prove extreme into May/June before this bottoms out.
Fibonacci -based extensions from the November 2021 peaks, as discussed before lie near 2346-2377. Additionally, it should be mentioned that the prior peaks from 2018 and 2019 hit just above 2050, so this should also be important if touched in the months ahead.
Given the 50% retracement down near 1905, I expect the second serious support zone to come about at 1905-2050 on weakness (though This isn’t necessarily a forecast, merely an area that will likely be important if touched on the downside in the event that weakness grows extreme)
Bottom line, most will be searching to immediately buy dips in stocks like AMZN. However, given the extent of the sector deterioration and the first meaningful signs of long-term trend weakness, it looks premature to try to buy this first 10% decline in hoping it’s a material low.
US Dollar continuing to surge, and has reached a 20-year high vs Yen
For those interested in Foreign Exchange, it’s imperative to take note that the US Dollar has advanced to the highest levels in 20 years vs the Japanese Yen. This has gotten extremely overbought and it’s likely that upside proves minimal in the months ahead before this reverses back lower.
However, this long-term pattern is quite bullish in having shown a reverse head and shoulders breakout and no real resistance is apparent until 135, which is still a bit above 130.88 where it closed on Thursday 4/28/22.
US Dollar strength is expected to show some evidence of reversing course in the month of May vs. Yen, Euro and Pound Sterling. However, given the extent of this surge in momentum in recent weeks, it will likely take quite a bit of weakness to expect that uptrends are starting to give way in the DXY. For now, this Dollar strength likely carries higher for another 1-2 weeks before stalling out, technically speaking.
