AMZN - Falling Wedge Breakout

Since we've begun a new year, I'd like to try correct the misunderstanding that many market participants have about technical analysis: that it is supposed to "call things" and "make predictions" about stocks. Perfect nonsense. Technical analysis is a tool, and a tool isn't able to make predictions. It is the technical analyst who makes predictions, if they so desire (I don't), and not all technical analysts will interpret a chart in the same manner.

My approach to technical analysis is to try to FOLLOW what a chart is telling me to do, to the best of my ability, and not get caught up in the ego-involvement of trying to "be right" about predicting anything. My focus is: Do I want to make a play at a stock, and if so, how am I going to play it?

Not all stocks chart well. Some go up and down and trade erratically, in which case I think it's best to avoid them. Some, like AMZN in 2011, have very discernible patterns that are eminently playable, as we can see from this chart. The key is to try to find good entries and to manage the trade well. I primarily play off the intraday charts, many of which I've posted, but I always look at a daily chart in order to understand the backdrop against which I am playing.

A tool that I use is one of my own design, the 13 ... 21 ... 34 ... 55 ... 89 ... 144 ... 233 Fibonacci sequential measures of relative strength. I also like to use them in combination with these Ichimoku Kinko Hyo charts. You might recall last June when I posted on AMZN being at the bottom of a Falling Wedge and retesting the neckline of a Bullish Inverse H&S Breakout (my buy order didn't get filled by ONE lousy penny...LOL). When the Falling Wedge broke out on June 21, "the work was done" and AMZN exploded to the H&S target of 215.86 and finished that rally on a Bearish Wolfe Wave Fakeout/Breakout.



The 13...21...34 Fibonacci sequential measures of relative strength are the slowest that I follow. If they're bearish, which they have been in recent months, and if the longer-term measures also are bearish (they have been in AMZN), the stock clearly is bearish.

These fastest measures are the first to turn higher, and as we can see without looking at the price chart, the 13/21 RSI pairing has thrusted higher, come back al-lmost to bullish synchronicity, then has thrusted higher again. That "could" indicate a sea change in AMZN from bearish to bullish, but technical indicators don't know what the price chart looks like. They just "indicate" and nothing else. They can't TELL US to buy or to sell.

Before we look at the price chart, it's important to note that the 21RSI rallied yesterday to Bearish Synchronicity with it's "shadow," the 34RSI, and got rejected. That's a short-term victory for The Bears. This action in the shorter-term RSIs indicates some head banging between the Bulls and the Bears: The 13/21RSI pairing is bullish, but the 21/34 RSI pairing is bearish, having been rejected yesterday.

Now let's look at the price chart to see if there's anything bullish going on since we got the early "indication" of bullishness from the 13/21 RSI pairing.



Hmm-mm...a technical breakout of a Falling Wedge, coincident with the 13/21RSI thrust higher, followed by a retest of the breakout that held up on a closing basis!

Hmm-mm...

Falling Wedge breakouts aren't particularly bullish because everything inside the wedge is IMMEDIATE resistance, as evidenced by yesterday's pullback from 184.80 - 184.65 horizontal resistance. That was "first resistance," and The Bulls got smacked.

If The Bulls can find support here at the retest of the top of the Falling Wedge, then knock out that resistance, that would indicate some kind of test of next resistance, at 199.66, as long as 184.65 - 184.80 holds up as support.

I have no idea whether AMZN will or won't move higher, so you see why I don't waste my time trying to predict anything. If I happen to be FOLLOWING it and think that I have a play, I'll go ahead with it.