Wednesday, December 14, 2011

The Curious Incident of the Hammer in the Tape

(Note: I borrowed from the title of this great book for this post; The Curious Incident of the Dog in the Night-Time)

It was another ugly day for stock markets. Gold and silver look like they are being unwound in size along with many commodities. Long term leaders like AAPL are having trouble finding any real footing. Various key levels have been breached seemingly without end. The swing from Santa Rally to years end to going to zero took about 3 days total.

It's dangerous right now. Crashes come from oversold conditions. The ONN/OFF switch may not get flipped one of these times.

And in all that, there was the curious incident of the hammer in the tape by Amazon (AMZN).

While 99% of the data flow I was watching was all about gold and silver, there were some other stuff. Mostly about either the Kardashians or year end predictions. One piece of news I saw that jumped out was from my friend @gapandyap (twitter handle) who was keeping an eye on some action in AMZN. I am glad he was.

From a low of $170 AMZN rallied into the close to $180. A tremendous intraday reversal. This kind of move results in the classic candle, "the hammer":
This kind of print can signal a strong trend reversal. I took a position in AMZN at $179 before market close..

The August low for AMZN was right there at $170. This level held again today. Should general market tenor improve I would expect a rally in this stock higher. The long tail of the hammer provides a no questions asked stop loss, $171. As the markets have been moving very fast I am getting in ahead of confirmation of this candle. This is my only long in trading account, the rest is cash. I like the defined risk/reward here should a bounce occur going into weeks end.

Have a good night.


David Batista said...

Like you, I get almost EVERYTHING through Amazon. So, believe it or not, I'm keenly interested in reading all your insights regarding this particular stock. Thanks for the write-up!

getyourselfconnected said...

No problem. Will see how it plays out this week. Thanks for the comment.