Amazon.com Inc. shares rose more than 10% last week, approaching November's record high. The stock has been forming higher lows for months, building underlying pressure.
Amazon's relative strength index reached 70 recently, a level typically considered overbought. In many cases, this would signal caution, but context suggests it may be a buy signal for Amazon.
The RSI measures recent price movement momentum. Readings above 70 often indicate overbought conditions, while below 30 suggests oversold. In uptrends, RSI can stay elevated as buyers enter on dips.
Amazon's move into overbought territory appears to confirm momentum has shifted toward bulls. The rally follows weeks of steady accumulation and improving sentiment, not a single catalyst.
Timing may favor bulls. Amazon's next earnings report is scheduled for late January. Historically, this period has been unfavorable for betting against the stock.
The company has a strong record around earnings periods. With RSI indicating bull control, the risk-reward profile looks attractive. Amazon ended last year essentially flat despite solid results, suggesting this rally reflects catch-up rather than excess optimism.
Analyst sentiment reinforces momentum. Multiple firms maintain bullish stances with price targets above $300, while the stock trades below $250. Overbought readings carry more weight when fundamentals deteriorate or sentiment becomes euphoric—neither applies currently.
Analysts remain bullish, expecting another earnings beat. Amazon's growth narrative remains intact. The RSI at 70 suggests the market is committing capital in size, possibly marking a new rally phase.
The rally may not be linear. Short-term pauses or minor pullbacks are possible after sharp weekly gains. However, bears have failed to break the multi-month uptrend.
If the stock consolidates or adds to recent gains in coming sessions, it will be difficult to bet against it heading into earnings in two weeks.