A Harami At Resistance For AMZN

03/27/08 09:14:05 AM

by Arthur Hill

Amazon bounced back after a double-top support break in January, but a harami at resistance could spell the end of this bounce.

Security: AMZN
Position: Sell

Figure 1 shows the big double top with the January breakdown. Amazon (AMZN) formed two tops just below 100 and then broke support at 77 to confirm the double top. Broken support turns into resistance and the stock bounced back to this area in March. In addition, note that the 50-day and 200-day moving averages converge around this resistance area for further validation.

FIGURE 1: AMZN. This chart shows the big double top with the January breakdown.

Graphic provided by: TeleChart2007.

The on-balance colume (OBV) did not bounce during the March rally. The bottom indicator shows OBV peaking at the end of December and declining to new lows in March. The inability to bounce showed weak buying pressure and the rally back to resistance looks shaky.

FIGURE 2: AMZN, DAILY. The white candlestick above the 200-day (red line) and the smaller black candlestick form the harami (blue box).

Graphic provided by: TeleChart2007.

With the stock nearing resistance, I looked a little closer at price action and spotted a harami forming at resistance (Figure 2). The white candlestick above the 200-day (red line) and the smaller black candlestick form the harami (blue box). This pattern represents an inside day and can foreshadow a reversal. The decline over the last two days confirms this pattern and reinforces resistance. The late February lows mark the first downside target around 62.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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A Harami At Resistance For AMZN

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