AMZN BULLISH???...Watching AMZN for a potential Inverse Head and Shoulders pattern to develop on the Daily Chart. AMZN sold off pretty hard leading up to earnings on 10/26/23 only to experience a large gap to the upside (represented by the blue parallel channel) to open the session on the morning after the report. The stock had been mainly trading inside a Descending Channel(D) since making its most recent high of $145.86 on 9/14/2023. After setting a 52wk Low in Dec '22, the stock began to recover before hitting the 200(MA)(D) and falling sharply as a result of a miss on Q4 '23 earnings announced on 2/2/23. The stock fell more than 20% before finding support and going on a straight rocket ship that it has been on since March of this year. The run has been fueled by three consecutive earnings beats, with the most recent being a few days ago on 10/26/23. As a result, AMZN has beaten projections for all three quarters of '23 and looks poised to have a strong Q4 with the holiday season approaching. AMZN has risen significantly over the last two sessions since the release of the earnings report, however the overall sentiment of the market is FEARFUL, and stocks have been in a corrective mode creating lots of downward pressure. The stock seems to have found support at the 200MA(D) and closed today above both the 50MA(D) and 100MA(D). This area also coincides with the Golden Zone of a Fib Retracement from the last earnings miss, to the most recent high. This area is represented by the yellow rectangle encompassing the Head, just below what would be the Left and Right Shoulders. Expectations are for a pullback in the area of $134-$136 down to the $123-$125 area, (completing the Head and forming the Right Shoulder) before continuing its upward trajectory. Price action should be interpreted as it develops, and this serves as a general idea how the chart could start to take shape. Levels should be treated as zones and entries taken on a real time basis.
Trade Scenarios
1. Early Takeoff
Stock had been trading in a Descending Channel(D) since August. The stock temporarily experienced a false breakout above the channel on 9/8/23 but returned back inside the channel eight trading sessions later. It traded inside the channel for about two weeks before another failed breakout attempt on 10/12/23 and ultimately falling back into the channel. On Thursday 10/26/23 (the last session before earnings were released) the stock found support at the bottom of the channel and the Golden Fib Zone creating a nice bounce allowing the stock to close above the Descending Channel(D). With strong momentum the stock could possibly take off from here however that seems unlikely. The safer play would be to wait for Bullish price action to occur on a retest of the top of the Descending Channel(D). If the overall market begins to show signs of strength, this could be a logical spot for the stock to bounce. This would still be an early aggressive entry.
2.Conservative
The safest way to enter the trade would be to let the pattern develop and take entry when the stock breaks the neckline. For added confirmation wait for a break and retest of the neckline but be mindful that this could result in missing the trade completely.
3. Aggressive
If the formation is to play out it may be advantageous to wait for a pullback/reaction at the potential neckline. Entry would then be taken if BULLISH price action developed at the anticipated area of the right shoulder.
*This is just one of many scenarios/formations that could develop given the stock's current price point and technical levels. It will be important to watch price action over the next couple of days to determine the ultimate direction of the asset.
*Bias is to the upside, but it is important to watch the overall sentiment of the market. A break below the area identified as the Left Shoulder would be the first warning sign, and a break below the area identified as the Head would totally invalidate the trade's parameters. Should that occur, it would not immediately mean the stock has turned BEARISH however, it would mean the stock should be re-evaluated before entry.
*RSI(D) has confirmed DBL BTM, breaking above the neckline and currently resides in BULLISH territory with a reading over 50.
*Watching Bollinger Bands(D), AVP(52wk Low) POC, VAH, and VAL for added support/resistance.
