When Relative Weakness Speaks First: What AMZN vs SPY Is Telling Me

 

Above is a 2-hour chart of AMZN, and in the lower pane I’m tracking a ratio line of AMZN versus SPY. This ratio line is something I rely on heavily because, at times, it can act as a leading indicator often tipping its hand before price itself makes the message obvious. When I focus only on price, I’m seeing what everyone else sees. When I add the ratio, I’m seeing how that price is behaving relative to the broader market, and that perspective can be invaluable.

A great example of this showed up earlier on the chart at point A. The ratio line broke below the prior low well before AMZN’s price did. At the time, price action alone didn’t look particularly alarming, but the relative performance was already rolling over. That breakdown in the ratio was a subtle but important signal of underlying weakness, one that simply wasn’t visible by looking at AMZN in isolation. In the days that followed, price eventually caught up to what the ratio line had already been signaling, and AMZN trended lower.

Now I’m seeing a very similar setup developing again. The ratio line has once again broken down, this time pushing to a new low below point B, while price has not yet confirmed the move. To me, this is another clear indication that AMZN is underperforming the overall market. Even if the broader indexes are holding up, AMZN is quietly losing ground on a relative basis. That kind of divergence matters, especially when it repeats a pattern that has already played out once on the same chart.

From here, my focus is on the 115 level. That area stands out as key support, and it’s the line in the sand for how I’m thinking about this trade. If AMZN breaks below 115, that will be the confirmation I’m waiting for. At that point, price will be aligning with the message the ratio line is already sending, and I would expect lower prices in the days to come.

This is how I’m planning to play it, letting relative weakness guide me and waiting for price confirmation before acting. I’ve found that using the ratio line this way helps keep me on the right side of the market more often than not. Curious to hear your thoughts, do you use relative strength or ratio lines in a similar way, or do you prefer to rely strictly on price?