AMZN Watch

The books-and-whatever online superstore Amazon.com Inc.(AMZN) switched to bear phase on the macd after seven trading days on the bull side. The bear signal is in line with the present trend, which has seen the price decline by 23.4% since April 22.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
AMZN $$118.80

At 1:32 p.m. Eastern

The decline came after analysts lowered the price target from $155 to $150, a response that seems more than a little silly, since the stock is trading below 120. But rationality has never been a key property of the marketplace, whatever Adam Smith thought.

The bull phase on the macd that preceded today's phase switch carried the price up 4.1% to a very near-term swing high. However, the price decline accompanying today's counter-signal put the entire bull phase into a 1.6% loss.

In the longer term, AMZN remains in an uptrend. The April all-time high of $151.09 well exceeded any previous high in the history of the company, the subsequent decline must move below $34.68 to qualify as a lower low.

Reversal Levels

• $151.09, +27.2% (all-time high)
• $136.99, +15.3%
• $129.15, +8.7%
• $118.8 <== You are here.
• $113.82, -4.2%

Fundamentals

AMZN saw rapidly growing earnings throughout 2009. However, their business hit a bump in the first quarter of this year, with earnings per share down 22%. Overall, however, the AMZN business model is a cash cow, in part for a reasons that Warren Buffet would love: They are the biggest kid on the block, by far, and so define their own business environment.


Some ways to play


AMZN options trade with $5 increments between strike prices, not my favorite situation, because it limits my ability to adjust risk in spreads.

Three short-term bear plays:

• A June -115/+120 bear put spread can be bought for a $2.04 debit. 
• A June -125/+130 bear call spread can be sold for an 85¢ credit. 
• An October 135 put can be bought for $22.75. 

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Disclaimer

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Abbreviations:

• psar - Parabolic Stop and Reverse
• adx - Average Directional Index
• pps - Person's Proprietary Signal
• ma20 - 20-day moving average
• macd - Moving Average Convergence-Divergence
• sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.