Looking for a way into Amazon (AMZN)? Check out the weekly chart. (November 07, 2018)
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Amazon ( NASDAQ: AMZN ). I am showing this on a weekly chart because I think it is a buy. I took a decent size position in it just today but on a couple of different fronts. First of all, from a longer-term perspective I bought some long-dated calls and on Amazon ( NASDAQ: AMZN ); when I say long-dated I mean January so I expect this stock to move higher.
Here’s how I really kind of traded it intraday: The chart looks kind of messy. I’ve got pivot points, resistance and support levels on here as well as a moving average of the volume weighted average price during the day, this changes as the stock trades. This is actually a key indicator first thing in the morning. Like I said, I have a position that I am going to hang on to for a while.
First thing in the morning everybody was in a mood to buy because the elections are behind us. One sentence on that: I don’t think it even mattered to the market what the outcome was. It just mattered that the election was over so everybody could look ahead. So that was a lot of the things that are behind this move. If you are looking any deeper than that into it be my guest, let me know what you find.
This stock gapped up like so many did and then it continued higher, this is a 5-minute chart, but then it gets this first natural pullback. You can look at almost ANY chart intraday of a stock that ultimately moves higher and this is what you get. The initial move higher and then at some point there is going to be a little reversal. Now, you don’t know whether it is going to be like this and then move higher. Or whether you are going to get a complete flip.
What you do is, you sit here, you wait, I’m looking at the VWAP here, it runs up right away because the stock jumps up. Heavy volume so that has a big influence on the indicator. And then once this stock starts to stabilize here I look at the VWAP as providing a level of support and that level of support will hold if there is buying. If there is real buying that wants to soak up this stock.
In other words, if this is just kind of a last gasp, retail guys are buying and institutions are still wanting to sell into it, they will sell because this is above the VWAP. And then as it falls, listen to me, I’m giving you pearls here, as it falls below the VWAP the selling will actually accelerate because the whole idea of the volume weighted average price indicator is to give the trader, a desk trader, give them a reference for how good their trade performance is that day.
What I mean is, if you have a big order to buy the stock you want to buy it as close to the VWAP as possible. You want to buy it as close to this yellow line here as you can. If you are buying it clear up here you’re a pretty crappy trader, frankly. On the other hand, if you are supposed to sell into this and you are selling it up here, that’s fine. But if the stock really starts to tail off here and you are telling your boss, your portfolio manager, “By the way we got out of all our Amazon ( NASDAQ: AMZN ) at 1650.00,” the first thing your boss is going to do is look at this VWAP and say, “What were you thinking man? You should have got out at about 1690.00, 1685.00.”
The point is, everybody, first thing in the morning, is looking to try to figure out whether there is buying or selling. We don’t know. And so the indicator itself is not magic, it doesn’t make any predictions. What it does is, it gives you a frame of reference from which to make a judgment about whether there is concerted buying interest this day or whether there is NOT buying interest this day. That’s it. So it is the combination of the price action and the VWAP that tells you whether you should be long or not long this stock. Shorting is another matter; we’re not going to get into that. Whether you should be buying this stock or whether you should be avoiding it.
And if this stock, instead of continuing up this way, if this stock had come down and then kept going you have got to stay away from that. You just say, “Alright, it went up above the VWAP. The VWAP reset up here and now the stock is down. I need to stay away from that.” You don’t buy this dip; people go broke buying dips, trying to buy at the bottom. Instead, you would wait and make sure that the stock is back above the VWAP. Or, and this would be more likely, you would have been on to something else and find a different stock to trade.
This actually turned out to be a fairly, I won’t say an easy trade, I don’t really see anything easy in this market right now, you have got to know what the heck you are doing. This falls back here; then by 10:00 it is kind of off to the races. Then my sense was, as I look at the rest of the market, you see that the Nasdaq ( NYSEARCA: QLD ) just kept running up. So I am looking at the rest of the market and I think this is a stock that I want to be long all day. Ultimately, what I will do on a stock like this is, I will buy some calls or maybe a spread where I cut down the cost basis of my call options by selling a higher strike option, one that’s a nearer term, a lot of times where you say you buy January and then sell a high December strike, something like that. But that’s for another video.
The bottom line is, look at the VWAP on a stock like this. If it is holding and the stock continues to move, that’s a stock that you want to hold. And as it turns out you are holding it all day long.
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