AMZN Chart

AMZN Trade Considerations

A super smart friend said to me today, “tell me what you think about buying AMZN, because a sensible friend of mine, said the following, blah, blah, blah”.  “Hmm”, I thought.

Lets say, Jim Cramer or another guest friend says you should buy a stock for XYZ reason, you can be sure within 4 days you’ll have another (or easily find another) friend, who firmly suggests that you don’t buy that same stock, for a whole other set of reasons. Both might be ‘right’. If you watch CNBC, you have friends, though rarely as smart as mine… See the parallel yet?

Remember consensus is rare, short lived, and dangerous. Except in Apple’s case, and maybe Amazon’s… Hmm, if this wasn’t a super smart friend I’d say, “run away”.

In any case we all look at the same charts, events, and time-frames, some with more clarity than others. By looking at the AMZN chart over the last year, I can point out some obvious elements which might help you, my virtual friend, manage an entry. You want to buy AMZN because you believe in their product, management, track record, positioning, gossip, etc. The reasons the market ‘intended’, and armed with a little knowledge…

But before you look at the chart below, KNOW that we’re entering earnings season. Amazon releases after the close 1/31/12 (still unconfirmed). This raises the likelihood that AMZN will move strongly one way or the other in the near future, if GOOG is any example (down 8% after hours tonight), I’d avoid going ‘all in’ before the 31st. Spread out your investment so you won’t completely miss the potential earnings gap up and can balance things out or bail if we get a gap down. Amazon will be watched closely, and it’s likely to over react in one direction or the other.

Now for the chart:

AMZN Chart

AMZN looks like it’s turning up off the low end of the range, breaking through the 50 day MA and approaching the 200 day MA (which could act as resistance). This is positive, but bad results from GOOG after hours yesterday, might weigh heavily in the short term. We’ll see.

Notice also the high RSI, this is getting into overbought territory (dangerous), though the MACD is still trending upwards (positive) – slightly contradictory signals here… Think CNBC.

Another indicator which speaks to sentiment is the call put ratio. In Amazon’s case you have an optimistic ratio. Today, 1.5:1 for example. Options are trading with positive expectations.

If I was going to imagine a stock investment here, even considering the chart’s and indicator optimism, I’d look for a bounce off the 200 day MA, a pull back and a small entry between 180/185 ish, before earnings.  Add some after earnings if AMZN doesn’t tank. 175 ish is a good stop-loss if you manage to get in between 180-185. Do this… Set a stop-loss when you make the trade.

If AMZN breaks under 175 after earnings, I’d reconsider completely, watch for 160 and start over. AMZN is a fund darling it’s unlikely to fall of a cliff but weirder things have happened.

Good Trading!