Tuesday, September 27, 2011

AMZN Watch

Anyone watching the Amazon.com Inc. (AMZN) stock chart in hopes of finding a price bump in anticipation of tomorrow's product announcement is in for a disappointment.

sym phase trend adx   200/50 40/10

The price opened high this morning at $234.75, just 9¢ shy of the all-time high set on Sept. 19, but then dropped sharply in the second half hour of trading and in the last two hours has stair-stepped steadily lower.

The rumors are Amazon will announce a relatively inexpensive tablet, the Kindle Fire, to compete with against Apple's iPad, plus maybe two new ereader's -- a $99 wi-fi only Kindle, and a pricier touch-screen G3+wi-fi Kindle.

If the company is indeed set to hammer both Apple and Barners & Noble on price, technology and programming, I would expect traders to be irrationally exuberant. But the chart shows we are, indeed, a dour and pessimistic crowd.

The price rose from $177.10 to $244 and then began a four-day drop that brought the price down to the 38.2% Fibonacci retracement level before recording higher highs two days running. Today's broad price swing has straddled the 23.6% Fib level, running from above to below intraday.

From my standpoint as a technical trader, there is nothing on this chart to encourage me to open a position in AMZN.

The price remains within the 20-day Donchian price channel, and the post-peak trend must count as neutral at this point: A higher low followed by a lower high. It needs a third extreme to define any sort of trend. Moreover, the price reversal has been strong enough to flatten the average directional index.

And the Fibonacci retracement is a bit on the wimpish side. Any Fib retracement worthy of the name will take out the 61.8% level, or at least the 50%, and AMZN has a way to go before it does either.

The Fib levels in play are:

  • 23.6% - $228.21
  • 38.2% - $218.44
  • 50.0% - $210.55
  • 61.8% - $202.66

The 23.6% level is just a few cents above the previous peak, set Aug. 19, and that level may well represent some moderately stiff resistance to a further fall.

With a return on equity of 14% and a debt to equity ratio of 0.27, AMZN no longer fits my definition of a growth stock, so my financial bias is not hugely bullish. The stock price has risen immensely since Nov. 2008, when it bottomed at $34.68. The main body of analyst consensus is the AMNZ is a stock to keep if you already have it, but maybe not the best choice for a new position.

If I were to play AMZN this week, it would be purely as a story stock -- buy the rumor, sell the news. The rumors about AMZN's new products began circulating month's ago. They're already priced in to trader's expectations.

The only way I would play it is as a straddle, a long call and long put option with identical strike prices and expiration. With that structure, I profit if the price makes a huge move in response to the announcement on Wednesday. But honestly, I'm sitting on the sidelines for my own account.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for neither.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules.


Tim Bovee, Private Trader tracks the analysis and 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.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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