Tuesday, January 03, 2012

AMZN is breaking out from support

I've been really lagging on the posts lately. If there's anyone who actually checks this blog on a regular basis, I'm sorry about that. One of my New Year's resolutions was to post more consistently. The market has really turned into a stock picker's paradise over the past year and I have plenty of ideas about things to post about. The S&P closed flat last year but there were stocks in the index up 100% while others were down nearly as much. One stock that moved a lot last year but didn't make much net progress in either direction was AMZN (Amazon.com). At it's high for the year (and all time), AMZN was up 30% yet it closed down 5% having "corrected" sharply since mid October. I don't want to get carried away with analysis on this one because the situation seems straightforward to me on a technical basis. I'll keep my opinions about AMZN's fundamentals to myself beyond saying that I only know a few people who didn't do more than half of their Christmas shopping on Amazon.com. So here's the chart:

Everything looks great up until late October when the stock gapped down $25 to below it's rising 50 dma. Even then, the stock was pretty well behaved. It bounced first at it's rising 200 dma and made two failed attempts to retake its 50 dma before rolling over below its 200 dma. As AMZN corrected with the rest of the market it traced out a very nice falling wedge consolodation pattern/flag on the daily time frame (blue). It has tested support at $177 from August multiple times and despite having broke for brief periods, AMZN bounced back each time. The most impressive false break of $177 occured on December 14th when AMZN formed a $10 hammer reversal candle for the day. Today, AMZN again broke back above $177 support and broke out of the falling wedge. While this pattern is stretching the limits of a healthy base/continuation formation, with the 50 dma/200 dma crossover that just occured, I really like the look of this chart.

AMZN still has a long ways to go before we can say the uptrend has been re-established. I'd like to see volume increase as it pushes higher. It needs to retake its 50 dma and after a few attempts I'd like to see AMZN decisively retake its 200 dma near $200 (a good first target). The CCI divergence is positive but it needs to get back above zero. I think AMZN has a great year ahead of it and I will be keeping a close eye on it.

Disclosure: I own AMZN calls but am short AAPL.

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