What could have caused the Amazon (NASDAQ 🙂 sale yesterday? The stock lost nearly 2.4% during Monday trading.
Indeed, since the April 29 eruption, which initially caused stocks to rise, stocks have collapsed. The only negative fundamental news that this could have caused relates to the investigation into the non-payment of taxes by the e-tail giant in Luxembourg, despite record sales in Europe of € 44 billion (nearly $ 53 billion). The reason: The company's Luxembourg unit reported a loss of € 1.2 billion ($ 1.44 billion).
There is, however, a critical caveat: the news story was published Tuesday, so how come the Wall Street sell-off happened yesterday, before publication? If this development had indeed had an impact on the stock, it could have been driven by 'informed money', people close to decision-makers who may have gotten a whiff of the news before it was publicly known. became.
Still, Apple (NASDAQ 🙂 has had similar legal battles in Europe, and despite the fact that its stocks are doing reasonably well. Even if the sell-off was provoked by the Luxembourg investigation, the company and its shares are not really at risk.
In any case, the current move is likely a profit-taking opportunity by some investors, which generally does not turn around. Plus, as we see it, it's an opportunity for people who missed our bullish call last week to get on board now. And buying the stock at this point yields an entry nearly 5% cheaper than last week's high.
From a technical perspective, this sell-off is the return movement following an upward breakout of a bullish flag. Note that the 50 DMA, which briefly dipped below 200 DMA, is now peaking back above 200 DMA despite the current sell-off, showing that it had not affected the upward momentum.
Sure, it's getting close, as both the MACD and RSI are resting on their support, just as price is testing its rising channel while simultaneously testing flag support. However, to understand why there would be such a conflict at this level, and why price is needed to develop a flag at this stage, look at the longer overview.
AMZN Weekly TTM
The flag, a market mechanism that creates momentum – while tired bulls take a breather while fresh bulls come in to carry the load higher – was needed to reverse the long-term preference for downward movement.
The stock has been developing a declining triangle since July 2020. However, instead of breaking down, the price escaped through the roof, in the opposite direction of the assumption. The flag developed right after the pattern erupted, which gave the bulls the extra power needed to push against the market grain.
Note that the weekly MACD turned into a bullish position. The weekly RSI is still struggling with its resistance. However, if the RSI climbs above its resistance line, it becomes the neckline of a momentum-based H&S bottom.
Trading Strategies – Long Position Setup
Conservative traders should wait for the price to bounce off the flag and hit a new all-time high, then wait for the dip that follows .
Moderate traders would wait for the flag to show sustained demand.
Aggressive traders could enter at will, provided they accept the higher risk commensurate with the higher reward of moving before everyone else. Ultimately, money management will determine success.
Here's an example:
Trade Sample
Input: 3,380
Stop-loss: 3,350
Risk: 30 points
Target: 3,590
Reward: 210 points
Risk: Reward Ratio: 1: 7
