7/19/2020 Analysis of longer term chart of Amazon ($AMZN). A long time blog viewer was interested on my thoughts.

Hi everyone, I hope you had a nice weekend. A long time blog viewer asked me where I thought a good entry was for a 1-2 year hold on Amazon. As a result, I’ve made this blog post solely on Amazon. Don’t hesitate to reach out if you also want a chart analyzed or have any other questions. 

Weekly chart of Amazon below (over the last 5 years). We are looking at the weekly chart instead of the daily chart because we are looking to hold for 1-2 years. 

AMZN Weekly 7_19_2020

I analyzed the drops Amazon had after making a new high, and circled the drops in the chart above. The average comes out to -24% from high to low, which would be a drop to ~2500. 

I prefer missing a trade that would have worked than to take a trade too early and lose money on it. However, a strategy could be to buy a 1/4th position at around 2500, and add the last 3/4ths position somewhere in the 2000-2200 level. 

To manage risk without a stop loss, I would keep the position size relatively small since Amazon is more volatile than the stock market, with a beta of about 1.3.

If you wanted to manage risk with a stop loss (recommended), I would put it near 1600, since any price below that would indicate a behavioral change. The largest drop in the last 5 years was 37% and a drop to 1600 would be a ~50% drop. 

If we are planning to sell near the previous high at 3300, a 2500 entry is mediocore from a risk/reward standpoint. If we plan to sell at a loss if it goes below 2000 (previous breakout level, which is now support), we are gaining 800 but risking 500 (risk/reward below 2:1). However, if we plan to sell near 3300 with an entry in the 2000-2200 level and a stop loss near 1600, that’s a risk of 400-600 for a reward of 1700, an excellent risk reward of 3:1 or 4:1. 

Again, since there’s a good chance Amazon won’t reach the 2000-2200 support level and reverse sooner, we could always take a small position near 2500 and plan to average down in the 2000-2200 support level. 

Happy Sunday, and thanks for reading! 

 

 

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