Background: AMZN Amazon.com, Inc. Services | Catalog & Mail Order Houses | USA
Amazon has an IPO in 1997 and after initial strong run retraced that to form a 2001 low, from which the Amazon has had an amazing rise to Dec 2015 high admittedly with accompanies volatility but nevertheless a strong bullish trend.
However, with Broader market having topped or is close to topping Amazon too is exhibiting price pattern that suggest it appeared to have topped in Dec 2015. It sells consumer goods and some of it could be classed as discretionary which appears to be forming triple top (see chart below). If correct this will be followed by strong reversal.
Likewise the Ratio chart of Consumer Staples/Discretionary (see below), which has been showing inverse relationship to the market might have already bottomed. If correct then it could being to rise with broader market entering a downtrend.
Summary of technicals:
1. The move up from Oct 200 is a rising wedge of all waves of 3 swings each (3-3-3-3-3 configuration) which are terminal waves when found in the current position. ie signalling end of much larger cycle of 5 waves . This type of pattern upon completion reverses strongly and often at least around 50%.
2. From Dec high we have 3 wave drop to Feb low and the retracement bounce also in 3 waves retracing almost 78.6% where a reversal could develop.
3. After the earnings announcement in Jan it shot up initially then dropped in free fall. This time we might have similar move but if not we could see immediate weakness.
4. Earnings announcement is 28th April 2016.
5. Several of the earnings data in April have been disappoint and resulting in price weakness particularly from the strong stocks like FB, NFLX, GOOG, and APPLE dues in few days with price already dropping. Amazon could experience the same.
Conclusion:
Taking all of the above it seems likely that Amazon has posted a major top in Dec 2015 and the current bounce is a retracement of initial drop to Feb low. Anticipated drop in the wave C is will be in 5 wave impulsive move to wards 300 zone being the vicinity of wave 4 of one cycle degree lower. This present a shorting opportunity.
Action:
Trade Setup 1 - (Long tern trade) Buy Jan 2017 PUT with strike price of 270 being quoted on 22nd April before open at $0.93 - $1.40. A fill around $1.00 would be acceptable.
A drop tom $470 the retest of Feb low could give ups approx 5 time the initial risk.
Trade Setup 2 - (Intermediate Term) BUY A Spread as follows:
Buy Oct 2016 PUT with Strike Price $500 and simultaneously
Sell Oct 2016 PUT with Strike price of $480
This should be executed as single trade. On 22nd April before market open is quoted as $2.0 - $3.0. Therefore, a fill around $2.50 would be acceptable.
If the price drops to $500 it could give us return of approx 5 time the initial risk with Max reward limited to price dropping to $480.
This setup is little more expensive to start with and limited for Max potential profit but give us bit more flexibility and would require further decision on managing the trade. I though I should highlight this setup if any of you wish to experiment with it on paper trading.
Warning: This is my interpretation of price action using TA approach that I consider helps me the most but could be completely wrong. Therefore as always, please do your own analysis for your trade and risk management. You should follow this on Paper Trading Account till you feel confident to apply the skill to a live account.
DanV
danv-charting.com
Amazon has an IPO in 1997 and after initial strong run retraced that to form a 2001 low, from which the Amazon has had an amazing rise to Dec 2015 high admittedly with accompanies volatility but nevertheless a strong bullish trend.
However, with Broader market having topped or is close to topping Amazon too is exhibiting price pattern that suggest it appeared to have topped in Dec 2015. It sells consumer goods and some of it could be classed as discretionary which appears to be forming triple top (see chart below). If correct this will be followed by strong reversal.
Likewise the Ratio chart of Consumer Staples/Discretionary (see below), which has been showing inverse relationship to the market might have already bottomed. If correct then it could being to rise with broader market entering a downtrend.
Summary of technicals:
1. The move up from Oct 200 is a rising wedge of all waves of 3 swings each (3-3-3-3-3 configuration) which are terminal waves when found in the current position. ie signalling end of much larger cycle of 5 waves . This type of pattern upon completion reverses strongly and often at least around 50%.
2. From Dec high we have 3 wave drop to Feb low and the retracement bounce also in 3 waves retracing almost 78.6% where a reversal could develop.
3. After the earnings announcement in Jan it shot up initially then dropped in free fall. This time we might have similar move but if not we could see immediate weakness.
4. Earnings announcement is 28th April 2016.
5. Several of the earnings data in April have been disappoint and resulting in price weakness particularly from the strong stocks like FB, NFLX, GOOG, and APPLE dues in few days with price already dropping. Amazon could experience the same.
Conclusion:
Taking all of the above it seems likely that Amazon has posted a major top in Dec 2015 and the current bounce is a retracement of initial drop to Feb low. Anticipated drop in the wave C is will be in 5 wave impulsive move to wards 300 zone being the vicinity of wave 4 of one cycle degree lower. This present a shorting opportunity.
Action:
Trade Setup 1 - (Long tern trade) Buy Jan 2017 PUT with strike price of 270 being quoted on 22nd April before open at $0.93 - $1.40. A fill around $1.00 would be acceptable.
A drop tom $470 the retest of Feb low could give ups approx 5 time the initial risk.
Trade Setup 2 - (Intermediate Term) BUY A Spread as follows:
Buy Oct 2016 PUT with Strike Price $500 and simultaneously
Sell Oct 2016 PUT with Strike price of $480
This should be executed as single trade. On 22nd April before market open is quoted as $2.0 - $3.0. Therefore, a fill around $2.50 would be acceptable.
If the price drops to $500 it could give us return of approx 5 time the initial risk with Max reward limited to price dropping to $480.
This setup is little more expensive to start with and limited for Max potential profit but give us bit more flexibility and would require further decision on managing the trade. I though I should highlight this setup if any of you wish to experiment with it on paper trading.
Warning: This is my interpretation of price action using TA approach that I consider helps me the most but could be completely wrong. Therefore as always, please do your own analysis for your trade and risk management. You should follow this on Paper Trading Account till you feel confident to apply the skill to a live account.
DanV
danv-charting.com
