Amazon (AMZN) will report earnings this Thursday after the bell, with the stock rising and expectations high. However, according to the charts, there are signs that the impressive rally may be headed towards higher resistance. I have been bullish on the stock and currently hold a 5.50% allocation in our growth model at Inside Edge Capital after increasing our holdings by 1.5% during the November rebalance. It is currently our fifth largest participation. But there are signs in the consumer discretionary sector that the recent underperformance relative to the rest of the “growth trade” may persist. You can see the extent of this deterioration using relative rotation charts, which are a wonderful tool for quickly identifying sector, industry, and stock rotations relative to a benchmark like the S&P 500. A stock or sector that clockwise rotation is gaining ground. relative strength and momentum versus the benchmark, resulting in outperformance. A tool that rotates counterclockwise loses ground and should be reduced or avoided. Looking at the weekly RRG of the two largest consumer discretionary stocks, AMZN and Tesla (TSLA), and the Consumer Discretionary Select Sector SPDR ETF (XLY), you can see that all three were attempting to pivot “up and in” in clockwise manner until they abruptly reversed at the red arrows. Amazon and Tesla reversed the trend in the last week of 2023 and XLY only in the last two weeks. Ahead of earnings on Thursday, expectations for Amazon are quite high. The Street is looking for $166.04 billion in revenue with a big boost to the advertising segment after the introduction of ads in the fast-growing Prime Video and Prime Membership segment. The advertising segment is growing even faster than the AWS cloud, and considering the growth numbers reported by Netflix, expectations here are favorable. What the Chart Says Looking at the chart, we see a warning sign that expectations of a strong relationship (and a resilient consumer) may already be priced into the stock and that the proverbial boat is loaded too far to the bullish side. Looking at the broader weekly chart, we can see that a 5-wave Elliott trend has developed, accompanied by the divergence of the RSI momentum in this recent push above the 2023 highs. This suggests that although prices continue to rise, they do so at a decreasing rate of change, which confirms the message of the RRG chart showing AMZN turning negative. Going into this week’s report, we are watching the $165-$170 resistance zone very closely. The big question is, will the Consumer Discretionary sector be able to stay afloat with AMZN’s technical warning signs and difficulties widely reported in TSLA? If so, sub-mega cap companies in the consumer discretionary sector may have their work cut out for them. I believe the industry can remain positive overall as the consumer is still in good shape and we will avoid a recession. I will therefore look for opportunities in sectors such as leisure and retail and may reduce our allocations to Tesla and Amazon… for now. DISCLOSURES: (Gordon owns TSLA and AMZN personally and in the asset management business.) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD CONSIDER SEEKING ADVICE FROM YOUR FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.