Since putting in its Bear Market low eight months ago, AMZN enjoyed a rally of 172% to its recent high of 94.40. It is said that the market is a discounting mechanism, and that it discounts the future roughly six to nine months out. In other words, by the time we hear rumblings that a recession is over and that we might be entering a new bull market (lots of rumblings recently), stocks already bottomed and have enjoyed some nice gains. Well-ll...
Basis the Ichimoku Kinko Hyo chart ("At A Glance...The Table Of Balance"), we can "see at a glance" that:
1. AMZN thrusted above its Kumo (Cloud) at the first of the year, beginning its transiton into a Bull Market,
2. It pulled back and found SUPPORT at the Kumo (Cloud), further suggesting a transition to a Bull Market, and
3. It blasted off to the upside on a Breakaway Gap at the end of January, 2009, completing the transition to a Bull Market, SIX MONTHS ahead of the current "rumblings" about the recession being over and about an incipient new bull market.
In early March, 2009, while AMZN was consolidating the initial gain off the blastoff in a Bull Flag (a bullish continuation pattern), many stocks and indices were at new Bear Market lows, and AAII bearish sentiment was at a generational extreme. AMZN and many other stocks already were in a new Bull Market.
This chart, along with many others that we've looked at in recent weeks that have had gains of 100%, 200%, 300%...are textbook examples of how the news is horrible at bottoms, and of how big gains already have occurred before we start to hear possible good news.
It might be time to SHORT EVERYTHING. Just kidding. Ju-u-u-ust kidding.
These are the individual patterns and breakouts along the way to 94.40. There was a little Bearish Wolfe Wave (in red) along the way, the target of which got MADE, then AMZN continued higher. All of the targets got MADE with the exception of the Falling Wedge target of 95.47. The recent high was 94.40
This is Kevin's possible Bearish Wolfe Wave that he mentioned in last weekend's Comment Section. Certainly worth watching.
Don't be intimidated by "Wolfe Waves." They, basically, have a big directional Lead-In (the arrow) like a flag pole for a Bull or bear flag. The ensuing waves form in the direction of the Lead-in. In this case, they must be "higher highs" and "higher lows," which they are, just like a Bear Flag/Rising Channel. The main difference between this Wolfe Wave and a regular Bear Flag or Rising Channel is the Wave 5 Fakeout Breakout, which we got on July 23. That put everyone who bought the breakout, or who covered their short, "wrong-footed." That candle also is a Bearish Island Reversal. It's detached from the preceding session and the session that followed, leaving longs stranded on that island unless/until the gap would get filled.
2 comments:
thanks melf.
I have questions regarding the kumo coulds. I had no idea of their existence until reading your blog, I did some homework and found a decent site kumotrader.com.
You used the cloud as an indicator of trend changes.
so if a goes through the kumo cloud, we expect further rapid movement in price? are there any targets with this?
Also, the cloud tends to flatten out for amzn in a couple weeks. Is there any other way to interpret this other than loss/ change of momentum much like when moving averages converge or cross?
Good Morning, Kevin,
As with anything else in technical analysis, there isn't any answer to your questions that ALWAYS can be applied, or we'd have more money than Warren Buffet. LOL.
Each situation with the Kumos has to be viewed in context with what the entire chart is doing. In this specific case with the Breakaway Gap out of the Bullish Inverse H&S in AMZN on January 31, after it had thrusted higher, then found support at the Kumo as the Right Shoulder was forming, yes, we can measure the pattern once it broke out and come up with a target, which was 82.24.
Otherwise, there isn't any target that can be derived from a move above (or below) the Kumo that I know of, according to what I read in the Metastock description of the Ichimoku Kinko Hyo charts. Basically, if prices remain above the Kumo, it's a Bull Market; below the Kumo, it's a Bear Market.
Sometimes, however, stocks go above and below the Kumo willy nilly, which tells us that the stock either is trendless, or that the Kumo simply isn't of much help in providing support or resistance as it trades in a paricular direction. In that case, we have to look elsewhere for clues, and there aren't always clues. In that case, it's probably a good idea to pass and not take any position at all.
You asked...
"so if a goes through the kumo cloud, we expect further rapid movement in price?"
Be careful with that. Often, as in the AMZN chart, the stock has a "thrust" above the Kumo (AMZN went to the $53's), then it pulls back for a retest of the Kumo (AMZN pulled back to the $47's) as the Kumo transitioned higher. So, a stock getting through the Kumo doesn't mean that it's going to accelerate higher right away.
Again, the Breakaway Gap out of the Bullish Inverse H&S pattern COMBINED with the stock moving well above the Kumo was "THE TELL" that AMZN probably would make a bid for something close to that 82.24 target, but as always, targets are just what we're aiming for, and are not guarantees by any means.
I'll have to check out kumotrader.com. Sounds interesting. Thanks for mentioning it.
By the way, the Japanese man who invented the Ichimoku Kinko Hyo charts did it in the 1930's. I used to calculate the exponential moving averages for the MACD's (and everything else) by hand before I got a computer in the late 1990's, and I can't imagine how the guy did all of the calculations. Can you imagine? He must have had a mind like a computer ;)
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