Here’s the long and the short of Amazon ($AMZN) – December 6, 2024
Dan Fitzpatrick here at StockMarketMentor.com. What are we going to do with Amazon ( NASDAQ: AMZN ) here?
The market is really, really rocking. There are just so many stocks that are moving higher that sometimes are lost between the noise, and the signal, which time frame do I look at? Things like that. It can cause you to either miss the trades that you should have been in or get in the trades that you really shouldn’t be in.
One of the biggest conundrums in trading is, what a beautiful-looking chart. Well, beautiful for the guy that bought it last week or last month. Now, not so much. So let’s take a look at Amazon ( NASDAQ: AMZN ) and see if we can make sense of this. You can see how this is just a zigzag away from here, up and down, and up and down.
This line here was on the Wednesday after the election, which is when so many stocks jumped. I always like to keep this in place and I’ll do it for a while to give me a benchmark as far as, what has the stock market done since that time? Or what’s the stock done since that time? That’s why you have this here
We see this big massive sell-off here, that’s the yen carry trade when they stopped carrying the yen, up and down, and up and down, and up. Now, this is moving higher but it’s way higher than a good entry point. So maybe we just shy away from this and say, Well, we missed the trade on Amazon ( NASDAQ: AMZN ), screw it, let’s go find something else.
That’s not the way I want to trade. I want to look at this stock and see that this is a monstrous stock. Do you know what they do? You probably don’t know everything that they do. These guys have their hands in everything. If I look at the weekly chart I get a much better sense of what’s happening here.
On the weekly chart, this is what we have. We have a nice inverted head and shoulders, I’ll let you pick out the shoulders, this is the head right here. But what I’m really looking at is this here, this level between 200.00, which is where this last peak was, in the middle of the year. And then down here, I’m going to call it 150.00.
And do you know why? Because that’s really, really simple math. And on a Friday afternoon, I like to have easy math and easy numbers. I look at measured moves this way, I don’t really use Fibonacci. Some people that I know do, for me, I just look at layers, I look at levels. I see this channel here that was created after that high and then it pulls back. We’re looking for a bottom, and now we’ve got one right here.
So there’s a $50.00 difference between where the high was, and then ultimately where the low was. Now, some of you may be looking at this and saying, Well, it wasn’t quite down at 150.00, it was like at 152.00 or something like that. I’ll just say this, don’t major in the minors on this because markets don’t trade that precisely.
Every once in a while you’ll see something just go dead balls on 200.00, 100.00, and stuff like that. Even with Bitcoin, when it hit 100,000 a week or two ago, whenever the first one was. It wasn’t 100, it bumped just a little bit above that before it came down.
The point that I’m making here, is for my move all I want to do is just look at the difference. It’s a $50.00 difference. And now I’m looking for a breakout, there’s my breakout and I’m deciding, do I want to take this trade? Remember, this is a weekly chart, do I want to take this trade?
Well, the first thing that I have to ask myself is, how much money do I expect to make on the trade? I want to measure that technically. Whether you’re using Fibonacci, Elliott Wave, or flipping a coin, you should not be in a trade before you can actually look at the chart and say, Okay, I expect the stock to go up to this number, and this is why.
It’s the why that keeps you from doing the hope strategy. You’ve got to be able to explain why you think the stock can go up to a certain level. I could teach a one-hour course on that, on which levels, how you do it, what are your indicators, all that kind of stuff. But this is not going to be that course.
The bottom line is, I just want to know what my potential reward is. And then from there, now I can back out and say, All right, how much am I willing to risk? Where’s my stop going to be? What’s my position size? That type of thing. As I look at Amazon ( NASDAQ: AMZN ), when it breaks out here, I’m looking at 200.00, 150.00, that’s $50.00.
I want to slap the $50.00 on top of the 200.00, and this is where my target is, right here at $250.00. That’s what I’m looking for, right up there. That’s how you make this kind of trade. So you’re taking the trade here, and then where’s the stock going? You can see how it farts around there a little bit. Once it breaks out, it’s typically going to come back, but not always.
You’ll typically come back to see the test. That’s when you really, really need to watch it. There’s so many people, I’ve been this guy a lot over the years, there’s so many people that you look at a breakout and you want to take the breakout. So you buy the breakout and then the stock pulls back and it shakes you out.
Breakout, shake out, walk out. It shakes you out and you say, Okay, well forget this, I’m going to move on. What you want to be doing instead is, you want to be watching the stock and seeing if you get a second bite at the apple. You’ve got to remember, institutions are what causes stocks to move.
They’re buying can push a stock up above a breakout level, but it’s not like they all get on the horn in the morning and all decide that they’re going to buy, some are going to be selling. Maybe there’s retail in there someplace one way or another. But in any event, you’re going to get a push higher. After a breakout, it will push higher.
Then you say, Well, what’s happening next? It’s the next that tells you what’s really going on with the charts. Here you get two down weeks, it didn’t even come back to test the 50-day or the 10-week moving average before moving higher. So as I look at this, I’m looking at volume, a little bit above average, that’s good.
The volume’s good, breakout here, so I’m looking at this to give me another 10 percent. Not a big deal but I’ll take over 2 percent So I’m looking for another 10 percent to the upside to about 250.00, and that would be my natural level of resistance. And then where would my stop be? I’ll tell you, I’m not going to use the weekly chart for this.
I could, I could say, Well, it’s 8 percent here so I’m looking at 10 percent on the upside, 8 percent on the downside using just this last bar as the low end of the range. In other words, 209.51 is the low so 209.50 is my stop. You can do that. Instead, what I like to do is, use the weekly chart for a frame of reference.
What am I doing here, am I getting long, or am I not getting long, what are the institutions doing? I can see those on the weekly chart, then I go to the daily chart and say, All right, now what’s my risk going to be? On something like this, I would actually use the 8-day exponential moving average. It’s not a perfect indicator, but it tends to work pretty well on stocks that have some momentum.
Here I would look at the 8-day EMA at 215.50, we’ll call it 215.00. So I can look at where the stock is now, drop it down here, maybe 214.00, 213.00, or something like that. And now I’ve got a risk of less than 6 percent. If the stock falls back and I get stopped out, well then this wasn’t a trade that I wanted to be in anyway.
If it doesn’t fall back and stop me out, well guess what that means? That means that this is a trade that I’ve wanted to be in. Anyway, I hope this kind of frames your analysis. I think it’s a really, really important concept to have in mind. If you can do that, I promise you, you’re going to trade better.
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