Could today’s 59-Minute Trade on Align Tech (ALGN) work tomorrow on Amazon (AMZN)? I’m thinking it might! (October 25, 2018)
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I want to look at Align Tech ( NASDAQ: ALGN ) here and here’s why: We have got a couple things going on. First of all, this thing totally got clocked; earnings, guidance, you name it, it just absolutely sucked. But I want to go over a trade that was here this morning because you can use a similar thing, my bet is, with Amazon ( NASDAQ: AMZN ) tomorrow. One of my members, in our trading forum today, talked about a trade that he did and he wanted me to take a look at it. I told him that I would even put it in a video.
He bought the stock this morning, this is a 5-minute chart, he bought the stock this morning at 206.00, that’s a pretty good move if you ask me; I don’t know exactly when he bought it but let’s go through this. First of all, when a stock is down like this, it fell so much, 20 percent, way outside like 3 standard deviations, this thing was just begging for a reversal. I was actually looking at it to take it the opposite direction first thing in the morning.
The idea is that when a stock gaps down this much, it’s big massive selling volume and then at some point that selling is going to exhaust itself. Once the stock moves above where the opening print was, that tells you that literally the selling has exhausted itself. The way you know is because everybody who wanted to sell, in this case at 230.00, has sold. Because if they hadn’t the stock would still be 230.00.
So I am sitting here waiting, then I get a call from CNBC wanting to know if I can be on Power Lunch and so I did that. I do enjoy being on there as long as it’s not too often. Anyway, I lost track of this stock because it was not meeting my criteria; it didn’t move back above there. And so I am off getting ready to do my thing in my monkey suit and this stock keeps going down.
So this member waited for it to start moving up, and to his credit, he didn’t try to get it right at the bottom here; wouldn’t that be nice? It looks like he kind of waited until he had some sense that the stock was starting to move up. You look at the volume, this is a 1-minute chart, this is 15-minutes into the trading day right here. You had to wait and wait and wait and you know a lot of people jumped in here, got shaken out or maybe they are still holding. The stock didn’t go down that much more but you sit here and you wait and you wait and you wait. You know what you are waiting for; you are waiting for evidence, not a feeling, not an intuition, not a hope. You are waiting for evidence that the selling pressure has dissipated.
When a stock is down this much and the selling pressure has dissipated, look, it’s not going to zero. You know there are going to be buyers coming in; 206.00 is the entry and then, frankly, it is just kind of a nice smooth ride from there; through the late morning, again, like just a pretty smooth ride when it’s all said and done. If we look at the VWAP here (volume weighted average price) on this, this is today’s action, this stock was not anywhere near the volume weighted average price all day long. So you get the sense here from the big turn here that the stock is rallying up and then it just stays above the VWAP. You could ride this all the way into the close. I think he closed it out at some point. The bottom line is, you are buying the stock at 206.00 and the stock closes at 230.00 or so. That’s a pretty good trade.
Can you do that same type of thing with Amazon ( NASDAQ: AMZN )? Amazon ( NASDAQ: AMZN ), as I look at it here, Amazon ( NASDAQ: AMZN ) is down at 1620.00. I would look at that to be the ultimate low on this stock. I could be wrong and I am sure we will get downgrades tomorrow and the whole bit first thing in the morning. But this is a stock that you can apply that same thing with Align Technology ( NASDAQ: ALGN ) tomorrow morning. So check out Amazon ( NASDAQ: AMZN ) and just watch how this trades.
Ideally, frankly, I would like to see this stock open up here, whoosh down to about 1550.00 and then start moving up. That would be a pukefest, that would be everybody barfing up this stock and you get a really nice move to the upside. But even if the stock opens up right here it has come down so far below where the closing price was, below the 200-day moving average, you are really likely to get some type of a rebound tomorrow. It is for a trade, I am not talking about for a long-term hold that could either work out or not. I am just talking about the rubber band dynamics of the market.
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