Handling the Amazon Pullback

 | Dec 30, 2012 | 5:00 PM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


Amazon (AMZN) has seen a healthy pullback recently, so here's the question: Is this a buying opportunity, or is a more important high now in place for the stock?

The good news is that we don't need to know the answer to that question in order to potentially profit from a trade in this stock. All we need is a trade setup, followed by a trigger that tells us it's worth placing an educated bet on the buy side. Let's talk about two trade-setup zones that I am currently stalking in Amazon. If this is a buying opportunity, ideally I'll want to see the price hold somewhere above the Nov. 15 low on a pullback. Those two zones both come in above that prior low.

Amazon (AMZN) -- Daily
Source: Dynamic Trader

The first area comes in at the $240.64-to-$242.59 area. It includes a 50% retracement of one swing, the Nov. 15 low to the Dec. 18 high; a 1.272 Fibonacci extension of the Dec. 11 low to the Dec. 18 high; and a 100% projection of a prior decline of $20.53 -- from the Oct. 26 high to the Nov. 15 low -- projected from the Dec. 18 high. Note that the current decline, from the Dec .18 high, is currently similar to that $20.25 decline (illustrated on the chart above).

The second zone comes in at $235.34 to $238.61. This includes the 0.618 retracement of the Nov. 15 low to the Dec. 18 high, a 1.618 extension of the Dec. 11 low to the Dec. 18 high, as well as three 100% projections of some prior larger declines. These are also illustrated on the daily chart. Note that these prior declines came to $24.50, 26.20 and $27.47. I include these projections because I've found that many moves in a market can be similar and sometimes even equal, so these projections are definitely worth watching!  

So now that we have a couple of setup zones, and we see the stock is essentially testing zone 1, let's look at what we would need to see on a 30-minute chart before we should place a bet on the buy side.

Amazon (AMZN) -- 30-Minute Chart
Source: Dynamic Trader

For me to consider a buy entry, I'll need to see an upside crossover between the eight- and 34-day exponential moving averages, and I'd the price to take out a prior swing high on the same chart. While both of these need to occur, it does not matter which happens first. At the moment, you can see that the eight-bar EMA is still below the 34-day EMA on the above chart. We are also still looking at a pattern of lower lows and highs.

Bottom line: I am keeping an eye on both of the above support decisions, along with my 30-minute chart, as I wait to see if the buy side will be triggered in the coming sessions against one of these key zones. If we see a buy trigger, the maximum risk should be defined below the low end of the second price cluster zone at the $235-to-$238 area. If this setup does start to play out, the upside potential comes in at the $276 area. There will be other targets I can post, as well, once a key low is defined.

If these same key zones are violated instead, I back off the buy side until further notice.

For more information on trades and triggers, please refer here.

Columnist Conversations

What ISN'T this company doing? Continues to dominate -- nice set of deals unveiled overnight.
The futures are up slightly this morning as traders buy yesterday's junk. As noted in last night's Strategy Se...
Equifax's (EFX) CEO is being replaced today in response to the data breach incident. Trading in the shares ...
TheStreet's Scott Gamm has Jordan Belfort on-camera today. Any questions you may have for the Wolf of Wall Str...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.