Thinking about buying Amazon (AMZN) now that the Whole Foods acquisition is complete? Here’s what ADX says. (August 29, 2017)
I want to look at Amazon ( NASDAQ:AMZN ) today. A lot of stuff happening in the Gold markets. By the way, I will digress here, you don’t want to buy gold now. The time to really buy gold was yesterday. And the time to sell it was this morning. As it is right now, it started a breakout, you can see this in the NUGT ( NYSEARCA:NUGT ). But then the first thing this morning it gapped up, the whole missile thing and all that, and then there were no buyers after that. So basically this ( NYSEARCA:GLD ) was a, you can’t really call it a panic, but it was one of those market reaction things that is almost predictable, at least in the short-run; where a geopolitical thing happens that has the potential to be very serious. Gold jumps up. And then as soon as the world hasn’t ended people start wondering, “Should I buy Apple or not?” And so that is kind of what happened today.
But I am not talking about that. I am talking about Amazon ( NASDAQ:AMZN ). Here is the deal: It depends on your time frame, but this is not a stock that you want to own. And I know that is an anathema to investing for a lot of people but there is every reason to be not long this stock. Let’s kind of go through them. First of all, you see the big kind of gap and crap here. Earnings, great earnings, everybody loves Amazon ( NASDAQ:AMZN ). And then the stock starts trending lower and it turns out the 50-day moving average is not a buying opportunity as it has been in the past. I have done this recently, I am not really going to do it again. But if you just kind of take away the symbol you can get a better sense of what is happening here.
These are Keltner Channels, these middle bands inside Bollinger Bands here. They are kind of similar, obviously, they are based on high lows versus the 20-day moving average but they trend the same way here. Amazon ( NASDAQ:AMZN ) has been trending down right along the lower Keltner band. Well, that is what losing stocks do. At the same time the ADX indicator, which is actually the black line here, it doesn’t really tell you much without the directional indicators, which are the red and the green here. So this is actually showing a stronger trend when the ADX line is moving up. It is not quite at confirmation yet, but when the ADX line is trending higher, that tells you that the trend is picking up steam.
Now, what trend? Well, the DI red is over the DI green. Well, what is that? This is a downward direction. This is an upward direction. This is a powerful indicator, not for day trading, but for swing trading, and also just for longer-term trends. So we will go into a little bit of detail here. The red over the green means downtrend over uptrend. The line here, the ADX line, is now above the signal line, which is a smoothed average of that. So we have got a downtrend in place here. That means that you just don’t want to be long this stock.
Now here is the other thing: If we just switch this to a weekly time frame, watch what happens to the indicators here. Boom! Okay, they switch. Suddenly, on a weekly basis, the green is over the red, meaning the direction is up versus down. But the ADX line, which is the strength of the trend, had been very high and now it has been declining. This really started, this decline started back here, very close actually to the high. And so if you look at where the stock was when this peaked, you look at where this was at about 1000.00. And then the next time it hit 1000.00, it actually went above this level. What happens to the signal line? It is lower. So we have got a negative divergence if you are talking about the strength of the trend right here, where the price actually hit a higher high and the strength of the trend was down. The uptrend is still intact if you are just looking at these directional indicators. But you can see, that is starting to weaken pretty quick.
So, even though this is Amazon ( NASDAQ:AMZN ), and even though there are a lot of Amazon ( NASDAQ:AMZN ) fans out there, ‘Amazonians’, whatever you want to call yourselves, a lot of people out there that just can’t bring themselves not to own Amazon ( NASDAQ:AMZN ). I will ask you this: Until the company reports earnings in a couple months, what is the next catalyst for the stock to go higher? I would submit, that there really isn’t a catalyst for the stock to go higher. It may not fall lower. It may not fall a lot lower, though the trend is down. It is slowly kind of taking out these moving averages, 50, 100, now it is going to test the 150. It is a slow drift. Just don’t own it. I wouldn’t short the stock. Frankly, if you want to look at it that way, so far it is holding support right here. You go ahead and short the stock now you will probably be shaken out. When it comes up here you will buy it back and then the stock is going to continue lower. What we are really talking about here is picking a direction that relates to your time frame, for how long you want to own the stock.
Anyway, stay away from Amazon ( NASDAQ:AMZN ) right now. And as I mentioned, stay away from gold right now. Wait for this either to settle in and then you get an opportunity to buy on the dip or if it breaks out above the high here of 40.37. I will just go ahead and set an alert for me. If it breaks out then you want to be a part of it too. But right now this just kind of looks like a classic start of a Phase 2 squeeze here.