It seems investors are again optimistic on Amazon.com (NASDAQ :). Shares of the giant online retailer closed 4.75% on Monday, finishing the day at $ 3,442.93.
The current exuberance is likely linked to the arrival of the company's annual Prime Day event, a two-day sale that begins today, Tuesday, October 13 and continues tomorrow. It is considered the company's top-selling event, during which Americans are expected to jump-start their vacation purchases this year.
Although earlier Prime Days took place in July, the event was postponed this year due to the coronavirus outbreak. Nonetheless, "people are expected to spend up to $ 10 billion on Amazon this week." In fact, some analysts expect this to be the most profitable Prime Day ever.
No wonder investors are willing to push shares up, despite the fact that when the news broke, US lawmakers were looking to split up some of the country's largest technology companies, including Amazon, due to monopolistic practices.
What a difference a week can make. Clearly, trader sentiment – and the technical outlook – towards the Seattle e-tail giant has shifted.
After the balance between supply and demand settled the anti-competitive legislative news, the price began to develop a declining flag. That happens while taking profit after a sharp move, in this case, close to 12% from the low of September 21 to the high of October 1, while new demand is catching the sudden spike in supply.
On the map, this is projected by the downward but congested range, which shows how busy these prices have been with traders. As a result, the price continues to rise after all available supply has been consumed and buyers seek additional supply, even at higher prices.
Note that after the flag's upward breach, the stock formed a bullish opening, clearing the July 13 high, the left shoulder of an H&S summit with surgical precision, as the price opened on top and stayed higher – supported by the highest green volume since April.
That suggests that the V&G summit in the making is over, requiring shorts to cover themselves, reducing supply as well as increasing demand, which may have also created the gap.
The implied purpose of the flag suggests that a new record high lies ahead. Additionally, these patterns have statistics on their side. For example, H&S patterns follow about two-thirds of the time. That means a third of the times they fail. And it seems like this is one of those times.
But just to be clear, we don't know what the future holds. We just weigh the evidence. As far as we know, the price went up prior to the big event and will go down as sales progress.
Notice, the price – which dropped the peak in the session yesterday – closed below its peak. It can jump above if expectations are met or exceeded, but it can also fall back if they disappoint, which would make a double top game. Moreover, the antitrust issue is always lurking in the shadows.
For now, however, we will continue with higher prices.
Trading Strategies
Conservative traders must wait for new highs, followed by accumulation, before committing to a long position.
Moderate traders can wait for a pull-back, after the short squeeze effect has subsided, to retest the pattern's support.
Aggressive traders could enter a counter-short position to make such a likely return move, knowing the risks and acting accordingly. Here's an example:
Trade Sample
Entries: $ 3,500 – psychological lap number above yesterday's truncated highlights
Stop-Loss: $ 3,550 – psychologically round figure above the Sept. 2 peak
Risk: $ 50
Target: $ 3,300 – round number within the gap
Reward: $ 200
Risk: Reward Ratio: 1: 4
