Talking My Book – Amazon.com, Inc.

Despite what could be called an uneven performance last week by the indexes, there were actually a decent amount of individual stocks setting up ($MGAM, $VVUS, $MLNX, $WFM, $FDO, etc.). I’m not sure if this means the market is ready for a little rally attempt or not, but I found myself initiating some positions and most are already in the green. One such trade I took was in Amazon.com, Inc. (Nasdaq:AMZN).

I have been tracking $AMZN closely since 6/4 when it rebounded powerfully from a test of a prior resistance level near 206. Prior resistance often becomes support and $AMZN did indeed find support after a partial gap fill of its May breakout. This is classic “consolidation 101″ and also fits into a larger cup with handle pattern that has been developing since late last year. Volume has also been tapering off in the handle as it consolidates which is a healthy sign.

After the rebound attempt on 6/4, $AMZN started to trade in a small flag of doji’s, signaling some indecision as it drifted back towards its 20-day moving average. It may be setting a higher low here, as buyers stepped in at the 20-day moving average. I initiated a position as it cleared Thursdays high, with a stop under Thursdays low on the assumption that this is indeed a new low. The target would be a test of the recent highs near 235. This yields a 4 point risk with a possible 19 point reward, or almost 5-1. A possible initial target could be near 226-228 and depending on market behavior, could be a place to scale out of some profits. Stop would be raised depending on price action, but never lowered.

While classic technical patterns have not been working that well the past few years, this trade has a very well defined risk and had a narrow range to trade off. This is a trade I will gladly take despite the choppiness of the markets recently. If it fails, then it would reveal much about the current market, so its a trade off I’m willing to make.

* Please perform your own due diligence as this is not a trade recommendation. It is simply an example of the reasoning behind a trade.

Good Trading,

Joey

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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