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Chart Of The Day: Will Prime Day Save Amazon?

Published 2022-07-14, 08:12 a/m
Updated 2023-07-09, 06:31 a/m
  • While consumers searched for bargains amid 40-year high US inflation, some suggested the best deal was Amazon's stock
  • While the Seattle-based company outperformed yesterday, it is lagging behind its benchmark on several time frames
  • AMZN bulls and bears now face off at a critical technical juncture

On July 12 and 13, Amazon.com (NASDAQ:AMZN) had its highly advertised Prime Day. But as consumers searched for bargains amid 40-year high US inflation, some suggested the best deal was the company itself.

The stock ended up climbing 1.08% on Wednesday, on a day that the Nasdaq 100 declined 0.14%. Still, in the week, Amazon lost 4.45%, underperforming the Nasdaq 100, which dropped 3.2%. 

So, how impactful was Prime Day on the stock? Some attribute the languish response to Jeff Bezos' bid on a German retailer Metro (TSX:MRU) in India. Investors were concerned that the bidding war could fuel further selling in Amazon stock.

Whatever the reason, bulls and bears are facing off at a critical technical juncture.

AMZN Daily Chart

The stock has been ranging since May 12, developing either an H&S Continuation pattern or a descending Triangle. The difference is academic. Both are complete with a decisive downside breakout, demonstrating that whatever argument was going on within the pattern has been settled, with the unanimous decision that prices are too high. But, what are those lines below the design?

AMZN Weekly Chart

Now, we could understand why the indecision. We're witnessing a struggle between bulls, where the uptrend line since the Jan 2015 low meets with the 2018 and 2019 highs, solidifying support. If the price completes the daily pattern, it will push the price below this confluence of demand, which could weigh even further on the price.

Trading Strategies

Conservative traders should wait for the daily pattern to complete, with a close below $99 and a three-session period, preferably to include a Fri. close, in which the price remains below the neckline, to avoid a bear trap. Then, they would wait for a return move to confirm the resistance below the pattern before risking a short position.

Moderate traders could short if the price falls below $100. They, too, could wait for a corrective rally to limit exposure if not for trend confirmation.

Aggressive traders will be content with an intraday fall below $101, recognizing that they could be whipsawed, either accepting the higher risk for a loss proportionate to the higher risk of beating other traders to the punch or are willing to risk a further stop loss. The more aggressive a trader is, the tighter must be his money management. 

Here is a generic example, though you can tweak it according to your timing, budget, and temperament:

Trade Samples

Aggressive Short Position

  • Entry: $101
  • Stop-Loss: $103
  • Risk: $2
  • Target: $91
  • Reward: $10
  • Risk-Reward Ratio: 1:5

Moderate Short Position

  • Entry: $102
  • Stop-Loss: $104
  • Risk: $2
  • Target: $82
  • Reward: $20
  • Risk-Reward Ratio: 1:10

Conservative Short Position

  • Entry: $103
  • Stop-Loss: $104
  • Risk: $1
  • Target: $93
  • Reward: $10
  • Risk-Reward Ratio: 1:10

Disclaimer: The author currently does not own any of the securities mentioned in this article.

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