AMZN: Ascending Triangle Breakout

From January 13:

"The AMZN Bulls need to get up there and knock out resistance in the 184's..."

Thar she blows!

Fortunately, I was watching AMZN as it was nearing the technical breakout above the 184.65-184.80 resistance that we've been discussing for the past week or so and bought it again, right at the breakout. I bought 2,000 shares at 184.85.

Notice that just prior to the breakout in the daily chart, which we'll look at below, AMZN formed and broke out of the little Symmetrical Triangle in this intraday chart, which helped to launch yesterday's breakout rally to over $190.



An hour into the trade, AMZN had formed and broken out of another Symmetrical Triangle (in white), which put a target of a little over $187 IN PLAY. I was up two dollars on the trade and "sold into strength," at 186.85, planning to buy back 1,000 shares if it pulled back a dollar. The pullback was only to 186.21, so I called it a day. My weary old eyes were ready for a rest at that point anyway ;)



As we know, Falling Wedge breakouts, like AMZN had on January 6, aren't the most bullish patterns in the world due to the technical resistance immediately inside the wedge, but as we also know, they can get a good bit stronger if a stock can hold above the top of the Falling Wedge and "morph," or change, into something like a Bullish Inverse H&S pattern or into this Ascending Triangle (pattern in blue).

The reason for the strength on a breakout like AMZN had yesterday is that the proverbial "everyone" is a buyer. Bulls buy and/or add to positions on the technical breakout, and Bears are forced to Buy To Cover when they recognize that they are caught badly out of position with the stock moving to new multi-week highs.

If The Bears get stubborn and don't Buy To Cover on the breakout, they get dragged higher. On pullbacks, Bulls want to get in at lower prices (like I did) and Bears want lower prices to Buy to Cover at a better price. As a result, pullbacks on a technical breakout like yesterday's often are shallow, and both Bulls and Bears alike are forced to "pay up" to get into the stock, or in the case of The Bears, to get out of the stock because Bears have to buy to cover their short position. Bears become "unwilling Bulls," so to speak. They're buying, which isn't what they really want to do. Thus, "buying begets buying." The rally is technically-driven and has little or nothing to do with the stock's fundamentals.

Math for the Ascending Triangle breakout target:

184.65 - the more conservative of the 184.80 and 184.65 highs of the pattern
166.97 - the low of the pattern

184.65 - 166.97 = 17.68 points of upside added to the lower high of 184.65.
184.65 + 17.68 = Target: 202.33 IN PLAY

As always, that's just what the measured move off this particular pattern breakout suggests, not a guarantee. The Ascending Triangle pattern doesn't "know," for example, that there's resistance at the December 2 high of 199.66, nor does it "know" that there's still some fairly immediate resistance inside the Falling Wedge. A lot can happen between hither and yon.



The bullishness in AMZN suggested by the second bounce higher out of Bullish Synchronicity in the 13/21RSIs, which we looked at on January 13, was borne out by yesterday's breakout, two sessions after the signal. That served as a nice leading indicator. The 21/34 RSI pairing now has thrusted higher for the first time since The Smackdown in AMZN began in October. That's "constructively bullish."

I've observed that repeat signals from these sequential Fibonacci measures of relative strength tend to be more reliable than isolated signals, like the four failures (red down arrows) in the 13/21 pairing in early-to-mid December, 2011. Those signals presaged the drop from 199 to 167.



Gain: $4,000