We observed many bullish divergences on the way down in the recent correction, but those were not much consolation for bulls as the market continued on lower. Many divergences remained intact, though, which meant they still needed to be monitored even if not immediately acted on.
One example of a divergence was the RSI (simply the Relative Strength Indicator) on Amazon.com. On the top pane below, note how the RSI made a higher low between late-October and mid-November, even as price made a lower low. Now, divergences do not always resolve in favor of the RSI. In this case, though, we can clearly see that the V-shaped price move off those lows (combined with a bullish MACD cross on the bottom pane) adds substance to the bull correction thesis rather than a complete breakdown and multi-year top idea.
Amazon has more work to do to become an excellent long swing setup, but this strong move off the lows is a great start, combined with confirming the bullish RSI divergence. Look for a higher low coming soon on any consolidation.
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It’s got 5 weeks to rally to all time new highs 🙂