Sunday, October 18, 2015

AMZN Amazon Weekly and Monthly Charts Rising Wedges Overbot Negative Divergence Upper Band Violation

Traders continue to buy Amazon sending it to record highs even though the company is so huge with hands in so many pies that you do not fully know what is behind the curtain. CEO Jeff Bezos does not do any interviews and does not speak often. The Amazon low-cost model is killing physical retailers such as WMT that lowers guidance last week and Wal-Mart stock collapses. Comically, retailers will have to keep cutting costs to compete with AMZN and Amazon is not profitable (they are all cutting each other's throats). UPS is raising shipping rates since more deliveries are going to rural areas. This is Amazon's tentacles spreading out into the countryside all across America and elsewhere.

The party is coming to an end at Amazon and the finish will likely be very ugly over the coming couple years. The rising wedge patterns, overbot conditions and negative divergence point towards turbulence ahead. Price has violated the upper standard deviation band on the monthly so a move back down to the middle band at 387 and rising is on the table and also the lower band.

The blue circles on the monthly chart for 2014 shows steady distribution taking place all year long; the smart money is exiting. Selling volume is stronger than the previous month that experienced a higher high in price. The rocket launch this year is surprising and since a lot of distribution had taken place last year many investors this year may be Joe Retail chasing the move higher. These retail investors thinking Amazon will be a great stock to hold will serve as the bag holders.

The weekly chart shows universal neggie d (red lines) so a spank down is needed now and will likely occur this coming week. The weekly chart is uninterested in seeing new highs in price again since all the indicators turn neggie d. On the monthly chart, the RSI, stochastics and money flow are cooked. Note the long and strong behavior with the MACD line and histogram. Both want to see a higher high in price after any pull back occurs and at that time they will likely roll over into negative divergence.

Marrying this thought with the weak weekly chart, the prognostication would be for price to sell off starting this coming week and for a week or three, then price will recover to satisfy the monthly chart coming back up to the existing highs again. At that time the monthly chart will likely be completely negatively diverged signaling a multi-year top in Amazon and the official end of the party. Thus, a significant multi-month and muti-year top is at hand and very likely before year's end. The monthly chart currently shows the October candlestick so November and December will be two more candlesticks and that may be enough to create the neggie d in the MACD.

If nimble, an AMZN short can be brought on now. Keystone has no position in AMZN but may place a short this week.  It is never wise to short a momo stock but the charts are very favorable for bears. Once a pull back occurs there is no point to get greedy since the monthly chart wants another high. So any short will have to be covered and then a big short can be put on when price recovers back to the existing highs as described likely anytime between November and January.

The rally this year follows bull flag patterns the green bull flat taking price to 450 and then morphing into a larger purple bull flat that targets 570 that is attained to satisfy the pattern. Note in 2014 when distribution was taking place the red descending triangle formed a very ominous bearish pattern but the bulls saved the day with the green falling wedge, oversold conditions and possie d that bounced price higher with a rocket launch. 

If you have enjoyed profits on AMZN, now is the time to take the money and run. A long position can be scaled out of over the next three months or simply just ditch the stock now and move on to other trades. You do not want to be buying Amazon long from here on out. It will not be surprising to see AMZN in the 250-380 range next year and well into 2017. CEO Bezos is about to experience a dramatic two years ahead; this is the exact calm before the storm that begins from here forward. Stay away from Amazon stock. Next summer you will look back and thank your lucky stars that you ditched your long position in AMZN this year.

Amazon is one of the FAANG (fang) stocks; FB, AAPL, AMZN, NFLX and GOOGL. One of the fang gang is about to be defanged. These stocks lead the broad market so any weakness in these components is not good for the overall stock market. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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