Here is the followup from my earlier post titled “The Value Added Tweet“. I will break down my thoughts in bullet points to move this along so I can try to get some sleep.
- AMZN has a history of being bought on large gap downs after earnings. Even if it doesn’t fill gaps it still is capable of having large intraday up moves
- After a stock has a powerful up move on the Open I watch the pullback to try to identify a large buyer. If I can identify a large buyer I am interested to see if the stock will hold higher.
- I then watch closely at previously identified S/R levels
- AMZN drove very powerfully from 172 to 176 at 9:45AM. 176 was a key level identified as support in the prior day’s after hours session and resistance in today’s pre-market
- After the powerful drive AMZN dropped down to 174.50 but never violated the 174.40 level where I first saw a large buyer defend the bid. Bullish
- AMZN consolidated for 20 minutes directly below 176 and then broke above on higher volume. Bullish.
- AMZN had a very shallow pullback from 177.20 to 176.50. It was now clearly above a key resistance level and not dropping back below. Bullish
- This was enough evidence for me to formulate a plan to get long
- As I tweeted here the plan was to buy in the range from 176.50 to 176.30
- The trade would be considered a failure if it traded back below 176
- The next major resistance was 180 and that is why that target was chosen
- This trade idea required no more than 30 cents of risk on the entire position
- Assuming you established the position at the mid point of the buy zone at 176.40
- Once AMZN clearly demonstrated it would not trade below 176.30 a sensible trade plan would be to hit out 50% of the position below this level. Assume a fill of 176.25. The remainder of the position should be hit out below 176. Assume a fill of 175.95.
- The above stop placements would create an expected loss of 30 cents on the entire position
- This trade offered about 2.5 points of upside under a normal scaling out strategy
- Assume selling 25% of the position at 178 based on the prior intraday high
- Assume selling another 25% of the position on the failure at 179
- Assume selling the remaining 50% between 179.90 and the 180 target
Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is [email protected].
No relevant positions
