Trend Check with Tushar Chande

Amazon (AMZN) Large Upside Gap Meets Jumbo Gap Criterion


Today's jump in Amazon (AMZN) after their  blow-out earnings announcement yesterday meets the jumbo gap criterion I had analyzed earlier, with an open well above the prior day's high plus the 10-day average true range.  It is nice when a stock actually follows through on one's analysis, and Amazon's price action today confirms my earlier chart analysis from October, 05.  I revisit the chart and show the Jumbo Scan from earlier today, which shows a number of big technology stocks that announced good earnings yesterday.


Chart 1:  This chart first appeared on Oct 05 as Chart 4.   As expected, Amazon tested resistance at 1020, then faced some selling going into the earnings announcement before the big Jumbo Gap today.



My Earlier Analysis (from Oct 05)

Here is what I expected: "Most recently, it (AMZN) seems to have broken above a down-trend line after forming a head-and-shoulders pattern as part of its test of support at 920-940.  Naturally, there is more work to be done, with resistance in the 1000-1020 area to overcome before challenging the huge overhead resistance at 1080.  It is possible it may form a wide right-shoulder (just like a wide left shoulder) as part of testing the resistance at 1000-1020."

As Chart 1 shows, Amazon did rise quickly after the  trend-break to find resistance just above 1020.  At 1020 we see a classic reversal, higher high and lower close, with the close being below the prior three lows.  This was a signal of strong resistance, and the stock sold off, in preparation for the earnings announcement.


Amazon Meets "Jumbo Gap" Criterion

Earlier I had discussed the idea of a 'Jumbo Gap', a gap larger than the 10-day average true range.  Such gaps tend to see strong follow through and are broadly bullish.  The latest scan shows that Amazon meets the jumbo gap criterion today, as do other tech stocks that announced earnings yesterday.


Chart 2: Amazon meets the Jumbo Gap criterion, which is broadly bullish as you read from my earlier post.  A number of tech stocks that announced earnings yesterday, such as Google, Intel and Microsoft are also on today's scan.  (See my Intel post here.)


Looking Ahead

Ideally, Amazon's stock price (and those of the stocks in Chart 2) will follow through on the jumbo gap for at least a week, perhaps much longer!

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Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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