Here’s your trade on Amazon (AMZN) tomorrow. (December 27, 2018)
AMZN
This is really a hard working market. What I mean by that is, if you have got any kind of risk management or any kind of parameters that you use to protect your trading capital, what you are going to find is those parameters are being tested. Because if you are being realistic as opposed to using the hope strategy, if you are being realistic the profit potential on a given trade just isn’t that great; let’s face it, it’s not. The profit is not that great if you are just looking at charts because there is so much volatility and there is so much resistance just overhead on any of these oversold bounces.
Amazon ( NASDAQ: AMZN ) is a good example of that, which I will get into in just a second. This is just really a tough, tough environment because of the fact that the reward that you can kind of reasonably expect to get isn’t that much. Therefore, you have to be really, really precise on your entries and manage your position size and stuff like that. So frankly, typically, if you are an active trader, in a market like this, by the end of the day, and you could be the exception to the rule and good for you, I’d love it but at the end of the day you could be looking at your profits and say, “Man, that was really, really hard work. My broker got paid a lot of commissions. I think I made a little bit more than my broker but maybe not.”
The point is, you have to trade differently in different environments, that’s what I will say. So with that said, as I look at Amazon ( NASDAQ: AMZN ), I have these stochastics on here for a reason, if you are just looking at stochastics, which is a measure of momentum, we get a low here corresponding to this, and you can see it here, a low here and a swing through, just like that. And now we are seeing this, the same type of thing.
Look, this is Amazon ( NASDAQ: AMZN ); a lot of this is just selling for a lot of different reasons, which I am not going to get into now. It’s a monster company, etcetera, etcetera, etcetera. Yadda yadda yadda, you know this. But I look at this type of a thing, I look at this kind of a pattern and I expect it to continue but I won’t place a bet on it. In other words, I need to see the stock paying me off I want to get paid. I am not going to sit here like a fool in a trade that is going against me and wait for the stock to realize that, no, I really am right and you are not. That’s not the way you make money.
When I look at stochastics, I see them turning around like this and it confirms the same type of behavior in the past so I am kind of looking for a trigger. And my trigger on this, if you weren’t already, and I traded around this a little bit today but I will be honest with you, I am not a gunslinger anymore. I was pretty skittish because it is a hard environment and frankly, I don’t feel like working that hard, I’ve got other stuff to do that I can make money at. So that didn’t really entice me too much.
If this stock rallies above yesterday’s intraday high, and that is 1473.00, so that is $10.00 more it is now. If this rallies above yesterday’s intraday high, this is for me, I will set an alert at 1470.00, then I am going to want to be a part of this. And depending on how it’s moving I may even buy the weekly options tomorrow, I mean the weekly options that expire tomorrow. And if you do, do that then you just have to know, obviously, hello, it’s a day trade so you can get screwed really, really quick; you are kind of playing with fire.
But if you know it is a day trade, if you know you are going to be out at the end of the day, you start slowly so that you build a profit cushion, you are not looking to hit a grand slam and undo all the damage that has been done to your account over the last few months. You are not looking for that but you are just looking for a trade. You can make that kind of a trade but only if it moves above this level. And also, keep something else in mind; I am always an advocate of totally avoiding margin. However, if you know that you are going to be placing a short-term trade. I just don’t think you should ever be margined overnight, never, just never. But if you know that you are going to be in a day trade where you are sitting here, you’re looking at it, and I mean with your eyes glued here, you need to be sitting here looking at this if you are trading options that expire that day.
The reason that I am just going into that is because some have a hard time buying a $1463.00 stock so you have got to do options. But another way to go, as I started to say, was you can use leverage. You can get margined on trading if it is going to be an intraday thing. But frankly, if you are wondering what margin is or if you are saying, “Oh, well don’t know.” Then no, you have to understand what you are doing, you need some experience. Or, with all that funny money you are going to wind up betting. You are going to wind up gambling instead of trading. That is not what I am talking about. I am just saying that after a reversal like we had on this yesterday and then actually an intraday reversal today, we can see it right here starting at like 1400.00, it just fell back and then really ran up nicely, almost 5 percent, which isn’t bad. I kind of look at this as a continuation of this, a little kind of a natural reaction if you want to call it that way and then a move higher.
So in my view, look, if we get past here tomorrow you are probably going to have a nice day trade on Amazon ( NASDAQ: AMZN ). But beyond that I can’t tell you what to do; this is a really dicey market. But just in general you have got to keep this in mind: The market is extremely, extremely, extremely oversold. That is the time when you will get these big bounces so don’t get the sense that I am telling you to stay away from the market. Well, actually, you know what? You could get that sense. Stay away from the market; kids don’t try this at home. But don’t get the sense that I am saying that the market is going a lot lower. I think it probably has a good chance of going a lot lower but I don’t know whether that is going to happen tomorrow or 9 years from tomorrow; I literally don’t know. The rubber band is stretched really, really tight. I think that the path of least resistance is up from here.
Here’s the payoff pitch: While I think the path of least resistance is up from here. I don’t know how much that resistance really is and I don’t know what that profit potential really is. So take that with a grain of salt. This is what volatility looks like; just when you think you’ve got the hang of what’s going on, you are proven to be incorrect.
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