Damage Has Been Inflicted on Amazon

 | Aug 25, 2017 | 6:00 AM EDT
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I've discussed over the past few days how several charts that showed short-term oversold conditions gave way to more downside or a retesting of the lows once the oversold condition was relieved. Now I realize everyone is on a page these days that says: "But the S&P 500 is only down 2% from its highs!" That's true, but what about the average stock? How many of those are down 2% from their highs? Not many.

You wouldn't have such grossly oversold conditions if the majority of stocks were only down 2% from their highs. Heck, look at what beloved Amazon (AMZN) did to the grocery stocks on Thursday, and even beloved Amazon is down about 10% from its recent highs.

The curious thing about Amazon is that it was having an awesome run this year until everyone decided it was killing anything and everything that jumped in its path. Like a tornado, it was on a path of destruction. Yet aside from the stock being down 10% from the highs a few weeks ago, AMZN is also at the same price that it was in early May. That's three months of nothing. And it doesn't take an experienced chart person to draw in this line at $925 and see that the level is important.

Or what about the red uptrend line that was broken? Yet everyone continues to fear AMZN. If this chart was anything but Amazon, you'd find a reason not to like it:

But here's the interesting part. The S&P Retail ETF (XRT)  has fallen by just over 10% since May (red arrow below):

So, who exactly is the winner and who is the loser?

My point is that up until May/June, it was quite clear who the winner and loser were. But since the "Amazon Kills Everything in Its Path" narrative started in full right around that time, the winner isn't so clear. The one thing I know is that if Amazon breaks under $925, the narrative will change drastically. Price has a way of doing that.

As for Thursday's market, we saw breadth better for the second day in a row. We saw the small-caps outperform for the second day in a row. And for the first time in 12 days we saw more new highs than new lows for Nasdaq. Heck, the NYSE Hi-Lo Indicator even finally saw a bounce.

We also saw the put/call ratio zoom up to 109%. Perhaps it's folks hedging themselves ahead of Jackson Hole or the upcoming weekend. But it does tell us that for the first time since Tuesday, when everyone declared the correction being over, there was some nervousness back in the market.

What's not so good? The transports not only made a lower low, they are now down on the year. I realize this hasn't mattered at all, but it's hard for me to imagine that at some point it doesn't become a problem.

And can you remember the last time the market got so grossly oversold and we didn't zoom higher every single day thereafter? Something has changed. And now we're no longer oversold. I still believe there is another push back down.

Note: I will be on vacation until the Tuesday after Labor Day.

(Editor's note: This column has been updated.)

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