Amazon Wipes Out Yearly Gains: 2 Reasons It’s Oversold

AMZN Stock Oversold: RSI Near 4-Year Low Signals Potential Rebound

Amazon.com, Inc. (NASDAQ: AMZN) has experienced a dramatic reversal in its stock performance, effectively erasing all the gains it achieved over the past year. This sharp decline has left many investors questioning the validity of the market’s pessimistic outlook. However, a closer examination of key technical indicators and underlying business fundamentals reveals that the market may be overreacting. In particular, the Relative Strength Index (RSI) for AMZN has dropped to levels not seen in nearly four years, strongly suggesting that the stock is oversold and poised for a significant rebound. This article delves deeply into the two primary reasons why the current market sentiment is misguided, providing investors with a comprehensive analysis to inform their decisions.

The stock market often reacts emotionally to short-term news and macroeconomic pressures, sometimes overlooking the robust long-term prospects of established companies like Amazon. Over the past 12 months, AMZN shares had climbed steadily, driven by strong growth in its core e-commerce operations, expanding cloud computing services through AWS, and innovative advancements in artificial intelligence and logistics. Yet, recent sessions have seen the stock plummet, wiping out those hard-earned gains and pushing it into territory that screams ‘bargain’ to savvy technical analysts. This isn’t just a minor pullback; it’s a full-year reset that has the financial media buzzing with bearish narratives. But beneath the surface noise, there are compelling signals indicating that this could be a classic buying opportunity rather than a sign of deeper trouble.

Reason 1: Technical Oversold Conditions Scream Rebound Potential

One of the most straightforward and reliable indicators pointing to AMZN’s undervaluation is the Relative Strength Index, or RSI. This momentum oscillator, which measures the speed and change of price movements on a scale from 0 to 100, has fallen to approximately 25—its lowest reading in nearly four years. Traditionally, an RSI below 30 signals that a stock is oversold, meaning sellers have exhausted their momentum, and buyers are likely to step in soon. For Amazon, hitting this extreme level isn’t a random event; it’s a rare occurrence that has historically preceded sharp recoveries.

To put this into perspective, the last time AMZN’s RSI dipped this low was during periods of intense market-wide selloffs, such as the early stages of the COVID-19 pandemic in 2020 or the inflationary pressures of 2022. In each instance, the stock not only rebounded but surged to new highs within months. Currently, with broader market indices like the S&P 500 showing resilience and rotation into tech megacaps, the setup for AMZN looks even more favorable. Investors watching similar setups in other high-quality names have seen average rebounds of 20-30% from such RSI troughs, and Amazon’s superior fundamentals amplify this potential.

Beyond the RSI, other technical metrics reinforce this view. The stock is trading well below its 50-day and 200-day moving averages, creating a significant support zone around current levels. Volume patterns during the decline have been decreasing, a classic sign of capitulation where weak hands are shaken out. Meanwhile, options activity shows unusual put selling and call buying, indicating that sophisticated market participants are positioning for an upside reversal. Chart patterns, such as a potential double bottom formation near the $160 support level, further bolster the case for an imminent bounce.

It’s worth noting that Amazon’s beta, a measure of its volatility relative to the market, has moderated in recent quarters, suggesting that much of the downside is idiosyncratic rather than systemic. This decoupling from broader tech sector weakness—where peers like Microsoft and Alphabet have held up better—highlights AMZN as an outlier ripe for mean reversion. For those employing swing trading strategies, the reward-to-risk ratio here is exceptionally attractive, with upside targets reaching back to $200+ in the near term.

Reason 2: Unshakable Fundamentals Amid Temporary Headwinds

While technicals provide the short-term catalyst, Amazon’s enduring business strengths form the bedrock for long-term outperformance. Despite the stock’s tumble, the company’s core operations continue to demonstrate impressive resilience and growth trajectories. AWS, Amazon’s high-margin cloud computing arm, remains the undisputed leader in a market projected to exceed $1 trillion by 2030. Recent quarters have shown accelerating revenue growth in AWS, fueled by surging demand for AI infrastructure, data storage, and enterprise migrations to the cloud.

E-commerce, often criticized for margin pressures, is undergoing a renaissance with improved profitability metrics. Amazon’s focus on private-label brands, faster delivery via Prime, and international expansion has driven market share gains. Operating margins in North America have expanded for several consecutive quarters, a testament to cost discipline and supply chain efficiencies honed during the pandemic. Advertising revenue, another high-growth segment, now contributes meaningfully to the top line, with double-digit increases quarter after quarter.

Recent headwinds, such as tariff concerns, regulatory scrutiny, and softer consumer spending, are largely transitory. Tariff risks, while real, disproportionately affect lower-margin retailers more than Amazon’s diversified model. Regulatory pressures around antitrust have been ongoing for years without material disruption, and Amazon’s proactive compliance efforts position it well. Consumer spending softness is cyclical, but Amazon’s recession-resistant qualities—essentials via grocery integration, subscription stickiness with Prime, and B2B sales—provide a buffer.

Looking ahead, analyst consensus points to robust earnings growth. Estimates for 2026 EPS have been revised upward in recent weeks, reflecting optimism around cost cuts and AI monetization. Free cash flow generation remains stellar, funding share repurchases and capex for growth initiatives like Project Kuiper satellite internet and advanced robotics in fulfillment centers. Institutional ownership hovers near all-time highs, with top funds adding to positions during the dip, signaling conviction in management’s execution.

Valuation metrics further underscore the opportunity. At current levels, AMZN trades at a forward P/E below its five-year average, a rarity for a company with 15-20% expected annual revenue growth. EV/EBITDA multiples are compressed relative to peers, and the PEG ratio suggests deep undervaluation when factoring in growth. Dividend yield isn’t applicable yet, but buybacks effectively deliver shareholder returns, with billions authorized annually.

Market Overreaction: Historical Parallels and Investor Implications

History is replete with examples of Amazon pullbacks that proved to be gift-wrapping for long-term investors. The 2022 bear market saw AMZN drop over 50% from peaks, only to double in the subsequent recovery. Today’s setup mirrors those episodes: extreme technical oversold readings combined with intact fundamentals amid macro noise. The key differentiator now is the AI tailwind, where Amazon’s investments in custom silicon (Trainium chips) and Bedrock AI platform position it to capture hyperscaler demand without the capex burdens of pure-play AI firms.

For risk-averse investors, dollar-cost averaging into current levels mitigates timing risk while building positions for the rebound. Swing traders can target the $185-$200 range initially, with stops below key support. Options strategies like bull call spreads offer leveraged exposure with defined risk. Regardless of timeframe, the confluence of signals makes a compelling bull case.

In summary, Amazon’s erasure of a year’s gains represents a market mistake driven by fear rather than facts. The RSI’s 4-year low and rock-solid fundamentals provide two ironclad reasons to view this as an oversold opportunity. As sentiment shifts and catalysts materialize—be it earnings beats, AWS updates, or macro stabilization—AMZN is primed to reclaim its trajectory, rewarding patient investors handsomely. Ignoring the noise and focusing on these core drivers could prove to be one of 2026’s most profitable trades.