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Saturday, March 14, 2009

A Hard Look at Amazon

Here is a look at AMZN from 2 different perspectives: Traditional TA chart patterns and Elliott Waves. I use a daily and a 60 minute chart as this should get us a good look at whats going on from several angles. I wish I could put more annotations on Stockcharts, but memory limits the amount of animations. So here are some supplemental notes for each chart that I would like to point out. Some I duplicate from the charts.

Traditional TA chart, Daily candlesticks:
1. The daily volume always helps determine larger picture.
2. From the Pennant formation, it is a difficult period to tell whats going to happen. This pennant selloff happened to occur right before earnings came out. But the selloff was lighter volume than the preceding advance to black "A" wave peak. So that is a cautionary indicator if you were thinking of shorting it at that point.
EW Chart, 60 Minute OHLC bars:
1. Wave 3's are always the strongest. In each half of this zig-zag pattern you can see the wave 3's (Big green 3 and big red 3) were the highest volume (use the daily candlestick chart for this, you'll see this clearer than on the 60 minute)
2. Wave 5's are always weaker volume than wave 3's. Once again the daily candles shows this clearer than the 60 minute chart. But you can see it is true
3. If C = A then a peak price would be $71.17. And that would fit very squarely into finishing my interpreted wave structure.
Overall Prognosis:
Amazon has had a hellava run from its November lows, indeed it has more than doubled. This occurred during a severe market decline which is all the more remarkable. There are negative divergences setting up on the daily candles and this signals a pullback is in order. However from the EW 60-minute chart, you can see the structure is missing a little subwave pink 5 to peak. You can see wedging on the 60 minute chart.
By EW theory, when it does its next pullback, the previous wave 4 is a good spot. However if this is a zig zag (so far) then that really doesn't apply here. But for now we'll use the previous wave 4 as a potential downside target which is around $60-$61.
AMZN has a HUGE gap up in a bear market. That is playing with fire if your holding this long from a spot above the gap. Any retrace down to the gap upper lip has to be interpreted in combination with volume. Once the gap is "dipped" into, they tend to fill sooner rather than later. Overall, AMZN is an excellent short potential to at least $61 or so with upside potential if its starts to fill its gap up. The gap goes all the way to $51.
So a short at $70.50 can potentially be held to $51 if any downside retrace starts picking up bigger volume. Amazon is a high-beta stock and one of the "Four Horseman of Tech" as Cramer likes to say. Its a darling and when it gets rolling upside or downside don't get in its way. Its showing signs of a potential reverse to the downside, at least for a few bucks.
One last item of note if your looking at AMZN: Watch for "upgrades" this week. Yes there is a conspiracy in these types of things. The MM's like to hand it off to retail at these stages. Also watch if Cramer touts this stock. That would flash a serious warning to get the hell out if your long.

1 comment:

  1. Yep, AMZN is toast next week.
    Great short play here.

    great charts