AMZN: The Bear Flag

In yesterday's Comment Section, Kevin said...

"today amzn made the 82.60 target. It then moved back above 83. I am curious what happens after a target gets made?

if the stock hits and continues to the downside, vs if it makes the target and then bounces?

does the target then become support/resistance?

I don't know if there's anything to be told about what happens afterwards..."

They all play out differently, Kevin. There never is any guarantee that a target will get MADE, and if it does, that doesn't tell us anything about what will happen after that. That would involve knowing the future, and we simply can't know that.

The market is dynamic, constantly changing, and we must change with it and adjust accordingly. Since we can't know with certainty what the market is going to do, we must try our best to know what we're going to do about it.

As you said, the first Bear Flag target of 82.60 got MADE in yesterday's trading. If we're short (I already covered), what do we want to do about that? That's up to the individual, but you know my feeling: "Take profits, or at least some profits, when targets get MADE," especially if that seems warranted, and we'll talk about that in a minute. If we take "some" profits, we can lock in a winner, or at least a break even on the trade, depending on how we manage the position.


Here's the Bear Flag. We can see that after the flagpole formed (the big drop), the flag formed in the opposite direction of the flagpole so it "should have been" bearish, and it was.

The "logical stop" in the trade is the high of the flagpole, 88.20. It's "logical" because it shouldn't get taken out to the upside, and if it does, something else is going on.

After the Bear Flag broke down, crossing 85.966, AMZN tried to rally back to the bottom of the flag. "Retests of breakouts/breakdowns are common, and are to be expected." AMZN rallied to 86.00 and failed (the first white arrow).

It then double-bottomed at 83.02-83.05 and made another attempt to rally off the jobs number, but it failed again, at 85.96 (the second arrow), which was the exact number where the Bear Flag broke down. That's DOUBLE resistance, at 85.96 - 86.00. When a stock makes a new low after establishing that kind of resistance, which AMZN did yesterday, the stop on the trade can be moved down to just above 86.00, but again, that's up to the individual. Personally, I wouldn't want to see DOUBLE RESISTANCE at 86.00 get taken out to the upside because if it does ...

... we'd be looking at a "W"-Bottom/Double Bottom breakout, which measures back to just below the recent high of 94.40.

88.20 - The high, and pivot of the "W" formation.
82.60 - The more conservative of the 82.60 and 82.45 lows

88.20 - 82.60 = 5.60 of upside on a breakout above 88.20

88.20 + 5.60 = Target: 93.80 IN PLAY

While I don't "think" that will happen, I can't know that, so I'd want to be prepared for what I'm going to do about it. I also didn't "think" that the Rising Wedge in Goldman would morph into a Channel and break out to the UPSIDE, but it did. See what I mean? We can't know the future, but we can be prepared for it by following the program, as best we can.

This Double Bottom possibility is why I think that "taking some profits when the Bear Flag target got MADE" is warranted, by the way.

Near-term, basis the 10-Minute chart, we can see that AMZN formed a Symmetrical Triangle (pattern in orange) last Thursday, and broke out of it to the upside on Friday's jobs number.

Friday, AMZN formed another Symmetrical Triangle (pattern in white) and broke out of that to the downside on Monday morning. The stock tried to do something bullish off that breakdown, but failed at 84.59 and 84.51 (the two red arrows at the horizontal red line). Traders who want to put a tighter leash on their short position would move their stop down to just above that level (84.60's), once AMZN broke to the new low of 82.45, known as "ratcheting down the stop."

Yesterday's trading is another possible Bear Flag (pattern in yellow), a "fractal" (repeating pattern) of the larger Bear Flag in the daily chart. That's encouraging for the Bears, who would like to see that break to the downside, then see 82.60-82.45 support get taken out. That would give a strong suggestion that the Bear Flag target of 80.37 in the daily chart will get MADE, or something close to that.

My apologies that this is so lengthy, but I think it's much more important to understand what's going on in a trade than it is trying to predict anything. We can predict things like, "AMZN will gap up," or "AMZN will gap down," but then what are we going to do about that?

If, for example, AMZN is called Gap Down this morning, at BID: 82.35 ... ASK: 82.40, below the 82.45 - 82.60 support, we would know that the Bulls very likely have a problem. Never any guarantees, of course. The market is about playing "likelihoods" and "probabilites," in my view, because we can't know the future with any certitude, although some players seem to think that they can ;)