AMZN: Make or Break (with Updates)

(2ND UPDATE 6/29/2010) The stock ended at $108.61, and it was as low as $106.01. Let's see if It tries to regain $110 tomorrow. If it tries and fails... look out below... to 200-MA on weekly at $78, which happens to be just about the target for the head and shoulders pattern...

(UPDATE 6/29/2010) And it broke! Watch if it stops around $110 and bounces. Slight positive divergence on RSI is gone now. If it does bounce but if it's a weak bounce (price, volume), filling the gap down to $80 may be coming soon....

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Amazon (AMZN) may be getting ready for a plunge, unless it manages to rebound right here right now.

Here's is AMZN's daily 1 year chart. After gapping up in late October above $110, it has managed to stay above that. But in the process, the volume has dwindled, and the pattern looks like a big head and shoulders (bearish), with the tiny right shoulder shaping like a descending triangle (bearish).


If the plunge happens, it is likely to fill the gap and settle between $80 and $90. Height of the head from the neckline (say $115) is 36. Neckline minus 36 will give you the target of $79, but I do see some support above $90. Also, technical indicators are not totally bearish, except for slow stochastics set at 89. It's already in a bearish territory of below 20. There's a positive divergence between the stochastics and MACD, but that divergence could be blown away if the tentative general market decides to go down.

AMZN will report its earnings on July 23. The stock tends to move significantly on earnings. August put option at $100, traded today for $2.69, could be worth $20 if AMZN plunges to my target... [Please do your own DD. This is not advice in any way...]

S&P 500 Curve Ball: W-Bottom Instead?

As every trader was watching the Head and Shoulders Top formation on S&P 500 index and itching to go short, the market threw a curve ball. Instead of breaking down at the neck line around 875, the index held there for 3 days last week, and on Monday, bam! Tuesday, it took a lower volume rest (still managed to go up), and Wednesday it resumed big upward movement at a higher volume.

Is it possible that, instead of the bearish Head and Shoulders, we may have a bullish Double-Bottom formation?

The pattern we see on the chart seems promising:
1. The right side of W is lower than the left side;
2. Volume throughout the formation hasn't been too great, but it is increasing as the pattern completes;
3. The index has come back to the mid-point of W, which is the breakout point if the pattern breaks out to the upside.

One caveat: Double-Bottom pattern is a trend-reversal pattern. The existing trend immediately before the Double-Bottom was an uptrend. Darn! You could possibly argue that the bigger trend since last September was a one gigantic downtrend, so this formation could serve as a trend-reversal pattern.

Another caveat: High-frequency quant trading is now out in the open, thanks to Goldman Sachs. Just be aware that these computers and servers don't care about you and me, small retail investors and traders.

Head And Shoulders On S&P 500 Index

That's what every trader, amateur or professional, has been watching for some time, probably ever since the index bounced off 888 on June 23, completing the "head" part. Many people have been very anxious to short the market, and now they have "the right shoulder" complete.

The head and shoulders formation is a bearish chart pattern. It is expected to break down at the neckline, which is where the index is at right now. According to Q-man at Tickerville.com, since so many traders (including him) think (and want) it's going to break down from there, it will eventually break down.

But the stock market doesn't always comply with the majority's wishes. One good example was the market's advance AFTER the initial V-shape bounce in March. From April to June, the market kept going up, albeit at a much slower pace, frustrating lots of traders who went short the market at the end of March.

Now the long-awaited "head and shoulders" has materialized! Time to short? Maybe. Maybe not. I am personally neutral, mainly because of the green circles that I put in the chart. During the whole period in which this head and shoulders formed, the candlesticks that usually signal a trend change - hammer, hangman, doji - did signal a trend change. And today we had a hangman, with the shadow touching the 200-DMA. Slow stochastics could be interpreted as positive divergence.

Of course it doesn't need to go up again, and the index can break down right here, right now. Then it will be one of those few cases where the majority is right.