Charting eBay and Amazon AMZN

Dec 23, 2008: 12:43 PM CST

A friend recently asked me what I thought of eBay and Amazon simply because he figured – as many people do – that because online shopping as a trend is growing, then the stocks of these two particular companies must be surging.  Let’s view the weekly charts of EBAY and AMZN to see if this well-mannered though is indeed correct.

eBay (EBAY) Weekly Chart:

Before getting ‘technical,’ let’s look at it from the average investor’s perspective.  It does seem to make sense that eBay and Amazon should be rising because everyone they know uses those services (it seems), particularly around the holidays, so why shouldn’t their stock continue higher indefinitely?  There’s many more reasons than “a bad economy,” but certainly that is the underlying cause of most of the stock market’s woes. These reasons are far more complex than a singular blog post can give them justice.

Switching back to the ‘technicals,’ eBay’s stock rose for the majority of 2007, however this rise was more of a false, ‘bear market bounce’ or ‘flag’ portion of a bear flag developing against the backdrop of a weakening economy into 2008.  Notice that price has now completed a full “Measured Move” of the previous down-swing impulse from $47 to $22 – price is finding temporary support at the completion price (which broke out at $35… $35 minus $25 gives us a rough, estimated target of $10 per share, which was achieved in late November).

Price now appears to be forming a mini-bear flag formation into resistance at $15.00 per share, though it is coming off a mini-positive momentum divergence.  The moving average orientation is classically in the most bearish position possible at this time.

Though Amazon.com (AMZN) showed relative strength to eBay for a majority of this move (particularly through 2007), we see that even massive seller Amazon.com is suffering the effects of the recessionary environment… despite the notion that everyone is using them (disclaimer – I bought two books this morning from Amazon.com).  Let’s see the chart.

Amazon (AMZN) Weekly Chart:

Investors were treated fancifully with a quadrupling in stock price from mid-2006 until the late 2007 peak – a remarkable accomplishment.  However, price has fallen as much as 65% from that lofty $100 per share peak.

Like eBay – though at separate times strangely enough – Amazon completed a massive bear flag (or measured move pattern) which exceeded its targets into the October/November 2008 lows.  Price is now snapping back from oversold conditions and is finding confluence resistance via the falling 20 and the flattening 200 weekly moving averages… though unlike eBay, the averages are shy of being in the ‘most bearish orientation possible’ (which would mean the 20 was beneath the 50 which was beneath the 200).

I added a bonus possible Elliott Wave count, which shows that we may have completed a full Elliott Wave impulse in AMZN, so you might be able to use this in your Elliott notebook as an ‘ideal example’ of a full Elliott Wave pattern.

I mainly wanted to shed light and counteract the seemingly logical investment thought “Hey, if everyone’s buying it, shouldn’t the stock be surging?”  The answer is of course “not necessarily.”  What seems ‘easy’ in the stock market usually is not, and what seems to make the most sense if often the strategy to lose the most money.  For more examples, see CROX (“Hey, everyone I know wears Crocks shoes.”), Wal-mart -WMT (“Everyone I know shops at Wal-Mart.”) and Microsoft – MSFT (“Everyone I know uses Windows!”).

Stock trading is more complicated than it seems at first, and it can seem like “up is down” more times than not, but stick with it and the more you learn/experience, the better you’ll trade.

Corey Rosenbloom
Afraid to Trade.com

9 Comments

9 Responses to “Charting eBay and Amazon AMZN”

  1. Vasu Says:

    Cory
    This is with reference to your article on GOLD dated 12/12 . After reading that article when I compare I noticed the following with gold :
    (1) Higher high and in the process of making a higher low .

    (2) The EMA structure of 20 day above 50 day on the daily chart is intact .

    (3) Price is above the 200 day EMA as of today .

    (4) P & F target of 1000 on GOLD .
    (5) Momemtum made a new high on daily chart and broke the down trend line on weekly chart
    (6) GLD making UP days on higher volume and DOWN days on lower volume .

    Do all the above point a bullish picture on GOLD ? If so could you please explain where exactly are we located with respect to the elliot wave theory ?
    regards
    Vasu

  2. julius Says:

    Dear Corey,
    eBay’s “completion price which broke out at $35…”? Would you please elaborate on “completion price”, what is meant by this? and on the $35 level, how come 35?
    thank you!

  3. Corey Rosenbloom Says:

    Vasu,

    I’ve tried to tackle the Elliott Count on gold and found I should probably leave it to experts, as we’re likely in a complex corrective wave currently in the midst of a larger Wave 4 down (which may be completing) on the very large time frames… meaning large Wave 5 is yet to come.

    All of those things you mentioned indeed point to a bullish bias in gold, combine that with fundamentals/news meaning all the economic uncertainty (and weakening US Dollar) should boost gold prices much higher.

    Why gold hasn’t surged yet remains a mystery to many traders, but it may seem we have renewed bullishness in gold prices in the short and perhaps even long-term now.

    By the way, gold officially confirmed an uptrend on the daily chart, which is a major – though often overlooked – structural point. Of course, that was your #1 point so good work!

  4. Corey Rosenbloom Says:

    Julius,

    I’m making rough estimations, but it would correspond more specifically to the $33 or so per share breakdown of the rising lower trendline (of the flag) when price broke to the downside, thus setting in a price projection target for a Bear Flag or Measured Move pattern, which expects an “equal move” of the prior down-impulse, which is then subtracted from the price breakout point near $33 per share.

  5. NotAfraidofTrend Says:

    Corey, the percentage movement on many individual stocks, e.g. AMZN above, is much greater than for Eminis.

    How should we go about finding the ideal stock for day trading, instead of Eminis?

    Using capital for trading a stock, instead of leveraging with Eminis, should also reduce risk, as we will not be forced to close a position, due to a random move against us.

    Please, your thoughts on this?

  6. AMA Says:

    Nice charts, and the amazing is the clear EW counting for AMZN. Its stop at 50 is reasonable fib level. Now what could be the pullback .38 or .62?

  7. Corey Rosenbloom Says:

    NotAfraid,

    I have a function I created in TradeStation that looks at the timeperiod ATR and divides it by the stock price to compare volatility. It’s not enough to scan for large ATR values, we need to divide it by the price to compare across securities. This is easily programmed in TS but you can also compare high beta stocks and run calculations through Excel.

    I would argue that random moves are more likely in individual stocks (trading intraday, not overnight, that is) than in the mini-index futures. True, the futures are more leveraged than stocks though, so that needs to be factored in.

  8. Corey Rosenbloom Says:

    AMA,

    AMZN recently found resistance at the 38.2% Fib (which was at $55.50 of the most recent swing down (from July).

    I don’t understand your last question. We just recently experienced the pullback that may have found key resistance at the 38.2% retracement at $55.50. If that’s the case, then we resume a move down in the direction of the prevailing trend.

  9. AMA Says:

    The move from Nov 21 stopped at the 1st resistance of 50-55, now the stock will pullback to find support at .38 or .61 fibo. I see the move from Nov 21 upto now as EW 1.