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Painful: Amazon

Post a Comment October 15, 2011 – 11:46 am |   | Permalink |  Print This Post |

Amazon Roadmap

Conclusion:

1. RSI downtrend line (red line) has no predictive value in picking the top (1999: rallied 9% to peak; 2003: rallied 110% to peak ; 2007: rallied 63% to peak; 2011: 56% currently)

2. BEWARE: Easy to overfit when drawing the RSI downtrend line. I tried blinding myself to the actual price chart when drawing the RSI downtrending lines)

3. When RSI spikes to kiss the downtrend line (Green vertical lines), it marks a TEMPORARY top in price. This is the ONLY reliable predictive value of the analysis above. For price to rally higher, the RSI needs to pull back before price is allowed to go higher. We are unable to pick the eventual top using the RSI indicator - look at 2003, the peak was 110% from initial RSI peak. If we apply the same factor to the current configuration, we have a price target of at least $320.

4. If RSI breaks out above the current downtrend line to form a higher peak, then all bets are off as it resets a new RSI downtrend configuration.

Trade Plan

1. Lighten up shorts if and when RSI and price pulls back. Need to prepare for >$300 price action. We will use the RSI spikes to time our short term trades.