For a long time Amazon has been a favorite of the momo (momentum) crowd in this momentum-driven stock market.
Amazon AMZN had been consistently ranked No. 1 in money flows. Recently all the planets aligned for AMD AMD and AMD dethroned Amazon to become No. 1. The planetary alignment for AMD included troubles at competitor Intel INTC, a new product introduction, a technical breakout, a short squeeze and an analyst setting a $30 share-price target based on his information that many institutions were looking to take big positions in AMD.
Now there is a so-called shooting star getting in the way. Let us explore with the help of a chart.
Chart
Please click here for an annotated chart of AMD along with the technical analysis. Please note the following:
• The chart shows the formation of a shooting star, a reversal pattern. A shooting star is characterized by the open price, close price and low price of the day in proximity to each other along with a long upper shadow. In plain English, a long upper shadow means bulls ran up the stock a significant amount from the open but failed to hold the high and the stock closed near the open and the low.
• The shooting star formation in the case of AMD is a weak one because the smart money (professional investors) stopped selling near the close.
• The chart shows the major technical breakout for AMD.
• The chart shows when AMD dethroned Amazon and became No. 1-ranked based on the ZYX Change Method. Please see “AMD dethrones Amazon in investor money flows.”
• The chart shows that when the momo crowd was aggressively buying AMD stock, running it up over $27, the smart money started aggressively selling. The trigger for smart-money selling appeared to be the ending of this leg of the short squeeze and a bullish analyst’s call.
• Selling by the smart money and the ending of the short squeeze caused the stock to move down. The momo crowd continued to buy during the pullback but could not overcome the selling by the smart money.
• The chart shows that the relative strength index (RSI) is very overbought and the momentum is waning. This makes the stock vulnerable to a short-term pullback.
• The chart shows that the shooting star was formed on very heavy volume. This is considered bearish….Read more at MarketWatch.
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