Looks like a Wyatt Earp pattern in Amazon (AMZN). (April 05, 2017)
AMZN
Today I want to look at Amazon ( NASDAQ:AMZN ). We are looking at it from a while ago, this was on the 27th of March. We have seen that this stock was squeezing, I was talking about it a lot in the Forum, I am pretty sure I have even done a few Free Chart videos on this; showing this, I guess you could call it a coiled spring, I would just call it future money; where these were the lows, that is the high, and then a tight little squeeze here. This is not some random stock, this is a very, very high profile stock so you know a lot of traders are looking at this and it is in demand but there is a lot of supply right around 850.00.
The idea for trading this stock was that you wait for the stock to pop; because several times here in the past the stock has pushed up above 860.00ish, something like that, and then pulled back. So if you are trading options, which I recommend for a lot of people who know options because the stock is $860.00. You can control a lot of shares and a lot of monies worth of shares with 10 or 20 options. So on that type of thing, if you are buying here then you are taking a loss. And you are buying here then you are taking losses, etcetera, etcetera. You wait for the right move and then you know that once the stock breaks out it is likely to go for several days. There is no breakout here.
Sure it would have been nice to have bought here at 840.00, now you are up almost $20.00, yippee. Well this has happened before. We are sacrificing some profit in order to maximize our certainty. In other words, we wait for the move. Even intraday, Boom! You are in. You don’t have to wait to people to close here. When you see the stock start trading above this level you go ahead and buy it. And by the way, you don’t have to be sitting at your computer all day waiting for this. You can set price alerts. Just about any software for trading will give you a price alert right to your phone. So you set a price alert, 160.00,161.00, something like that. And then when the stock breaks out above there you are in.
Now, on a volatility squeeze like this, this is not a one-day wonder, it keeps going. Now, watch these Bollinger Bands. This is two standard deviations above and below the 20-period moving average. Most of the time the stock is supposed to stay within these Bollinger Bands. If it doesn’t then the bands are going to start expanding, as they are doing here, essentially trying to catch up with the stock. So, one, two days in a row the stock trades above the upper Bollinger Band. Three days in a row it keeps going. This is a strong stock. Four days in a row it continues to move.
This was Monday, now the stock definitely has got to reverse, right? Okay, well not so fast. We get another few percent here. So for how many days in a row? One, two, three, four, five days in a row the stock has closed above the upper Bollinger Band. It is not supposed to do that; it is breaking the law. Now, if we go back and add these other two days, where the stock started trading after it rebounded off the 50-day moving average, then we have, one, two, three, four, we know what they are, seven days where the close is noticeably higher than the open. In other words, there is buying all the way into the close here. You can see it, one, two, three, four, five, six, seven days just like that, closing near the top of the range.
Now we get to Wednesday the 5th. We got a really nice move during the day and then the stock came up almost to 925.00 and then reversed. Frankly, the reasons why it reversed aren’t particularly important, it was a Fed minutes thing, etcetera, etcetera, the whole market reversed. What is important is this: It is important that you understand, there is a Phase 1, 2, 3 sequence in these volatility squeezes. And the fact that this stock blasted up here like this and then reversed intraday to close near the low of the day and lower than it opened, reflects in my view, the end of Phase 1. Now what we are doing is, we are waiting to see whether Amazon ( NASDAQ:AMZN ) corrects. Or whether it just kind of drifts sideways for a while.
What I am not expecting on this stock is just a continuation of the uptrend. So even though we get a positive close by a third of a percent, $2.50, this is nothing. If you are just looking at a line chart, this actually still looks pretty good. But when you consider the intraday reversal on this, this is known as a dreaded tombstone doji, the name kind of speaks for itself, I think you want to be out of this stock now, if you are trading. If you are investing, stay long, the stock is doing fine. I am actually short this stock right now, by puts. I had bought some puts during the day here but I don’t like to hold puts over night, not on a stock like Amazon ( NASDAQ:AMZN ). I am short some way out of the way calls because I do not think Amazon ( NASDAQ:AMZN ) is going to go up in the future at the same rate that it has in the past.
So my suggestion is, you start clearing out of Amazon ( NASDAQ:AMZN ), at least raise your stops. But do protect your profits on this stock. Because we don’t see these types of squeezes very often, not in these high profile stocks like Amazon ( NASDAQ:AMZN ). And I will tell you these squeezes do not continue indefinitely. At some point they will reverse. At that point, that is when you want to be exiting this stock.
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