Greetings: Whenever I find any pattern that seems to repeat itself too many times, that is when I get suspicious and begin to imagine that the market will do something different. What I see here in AMZN is a continuous pattern of "FALSE BREAKS" of previous reaction lows which makes traders think that every break is a buying opportunity. AMZN just had such a break when it reported recently. When respected fundamental analysts think that AMZN is 50% or more overvalued and when technically-based traders are long and hoping for a pre-holiday rally to unload their shares, then this is the setup for a great trade. The Kindle Reader and the jockeying for Black Friday sales haven't done anything for the . Lastly, I looked and found gaps on the chart which, if filled, provide a huge risk/reward trade. For now, target the last 3 months trading range of 60 points down from current prices. Risk 24 points.
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This was a good call. And notice that the stock bottomed in the time frame that I outlined based on the previous "accumulation" phase. So, the stock was weak, as forecast, and bottomed in the time zone, as forecast. Overall, direction and time, just missed on the magnitude of the move. Cheers.
Thanks for your question: The concept of filling gaps is widely commented on by plenty of authors, but I haven't seen a definitive study to see what percentage of them are actually filled. Looking at most charts, you will see that many get filled but it certainly isn't necessary. The concept behind gap-filling is that a gap shows a dramatic change in sentiment or "new news" that the market is discounting. So, what I like to do is to simply use the gaps as a sign of important momentum going on in a stock. Once you get far away from that news, and momentum wanes and the stock gets vulnerable to being "tested" in the form of a price correction, then you can look to those gaps as targets. Just as many technical methods give you price targets, it is also wise to have a "time target" to exit a trade. The method I labeled provides one method that I have intuited from doing nearly 3 decades of charting and from learning from the best analysts in the world. It makes sense that the time of an accumulation is one measuring stick to look for the time of a rally and the "GAP" or "TAKE OFF" is one way to signal that the accumulation is complete. So, in the reverse, it also makes sense that these concepts work. Thanks again for your question. Cheers. Tim