An
InvestorLinks article
distributed every market day.
Amazon.com
(NASDAQ: AMZN)
Market Call™ for December 7, 1999
Contributed by Mark Seleznov, TrendTrader.com.
The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
The Head and Shoulders Pattern
The head and shoulders pattern is generally regarded as a reversal pattern
and it is most often seen in uptrends. It is also most reliable when found
in an uptrend as well. Eventually, the market begins to slow down and the
forces of supply and demand are generally considered in balance. Sellers
come in at the highs (left shoulder) and the downside is probed (beginning
neckline.) Buyers soon return to the market and ultimately push through to
new highs (head.) However, the new highs are quickly turned back and the
downside is tested again (continuing neckline.) Tentative buying re-emerges
and the market rallies once more, but fails to take out the previous high.
(This last top is considered the right shoulder.) Buying dries up and the
market tests the downside yet again.
Your trendline for this pattern should be drawn from the beginning neckline
to the continuing neckline. (Volume has a greater importance in the head
and shoulders pattern in comparison to other patterns. Volume generally
follows the price higher on the left shoulder. However, the head is formed
on diminished volume indicating the buyers aren't as aggressive as they
once were. And on the last rallying attempt-the left shoulder-volume is
even lighter than on the head, signaling that the buyers may have exhausted
themselves.) New selling comes in and previous buyers get out. The pattern
is complete when the market breaks the neckline. (Volume should increase on
the breakout.)
This pattern can be used on charts of various time frames from minutes to
daily or even weekly charts.
Our charts are 60 minute charts.
Let's look at Amazon.com (NASDAQ: AMZN)
Head and Shoulders Pattern:
A major reversal pattern with four distinct features:
Left Shoulder:
A high volume rally and top followed by a minor reaction with significantly
less volume than during the rise and top. This is the period November 30
through December 1.
Head:
Another high volume rally with the top reaching a higher level than the
left shoulder, followed by a another reaction on less volume that takes the
price to a level near the bottom of the previous reaction. This time frame
is December 3 price action.
Right Shoulder:
A third rally on noticeably less volume that fails to reach the top of the
head. This is the late December 3 and December 6 time frame.
Neckline:
A decline in prices from the top of the right shoulder which falls below
the line formed when connecting the bottoms of the left shoulder. This is
drawn by connecting the bottom around 84 of the left should on Dec 1 and
the current low of December 6 at 84 11/16.
I would exit AMZN on any break of 84 11/16.
An aggressive trader may want to Short AMZN on this break at 84 11/16.
On a Short position, I would place my stop at 89.
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Call Information
Mark A. Seleznov is a General
Securities Principal and Managing Partner of Trend Trader, LLC, a NASD, SIPC broker/dealer firm located in
Scottsdale, Arizona. A professional trader for over 25 years, Mark was a Market Maker on
the Philadelphia Stock Exchange, a Retail Registered Representative, and futures trader.
Mark is an author and recognized expert in equity Day Trading. He conducts seminars in
Equity Day Trading and offers his firm traders training and support. If his firm holds any
positions in the public companies he writes about, it will be noted at the bottom of his
article.
Market Calls is a daily syndicated column on trading by Mark A. Seleznov, Managing Partner
of Trend Trader,
LLC. For information on obtaining Market Calls for your web site,
newspapers, or publication, contact Trend Trader, LLC at 602-948-1146
Disclaimer: Trading in securities may not be suitable for
all individuals. Consult your broker or other professional to determine your suitability.
This is not an offer to buy or sell securities. The advice given above is of a general
nature and should not be taken as a recommendation to buy or sell the referenced security.
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Last modified: March 17, 2001
Published By Tulips and Bears
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