A friend recently asked me what I thought of eBay and Amazon simply because he figured - as many people do - that because online shopping as a trend is growing, then the stocks of these two particular companies must be surging. Let’s view the weekly charts of EBAY and AMZN to see if this well-mannered though is indeed correct.
eBay (EBAY) Weekly Chart:
Before getting ‘technical,’ let’s look at it from the average investor’s perspective. It does seem to make sense that eBay and Amazon should be rising because everyone they know uses those services (it seems), particularly around the holidays, so why shouldn’t their stock continue higher indefinitely? There’s many more reasons than “a bad economy,” but certainly that is the underlying cause of most of the stock market’s woes. These reasons are far more complex than a singular blog post can give them justice.
Switching back to the ‘technicals,’ eBay’s stock rose for the majority of 2007, however this rise was more of a false, ‘bear market bounce’ or ‘flag’ portion of a bear flag developing against the backdrop of a weakening economy into 2008. Notice that price has now completed a full “Measured Move” of the previous down-swing impulse from $47 to $22 - price is finding temporary support at the completion price (which broke out at $35… $35 minus $25 gives us a rough, estimated target of $10 per share, which was achieved in late November).
Price now appears to be forming a mini-bear flag formation into resistance at $15.00 per share, though it is coming off a mini-positive momentum divergence. The moving average orientation is classically in the most bearish position possible at this time.
Though Amazon.com (AMZN) showed relative strength to eBay for a majority of this move (particularly through 2007), we see that even massive seller Amazon.com is suffering the effects of the recessionary environment… despite the notion that everyone is using them (disclaimer - I bought two books this morning from Amazon.com). Let’s see the chart.
Amazon (AMZN) Weekly Chart:
Investors were treated fancifully with a quadrupling in stock price from mid-2006 until the late 2007 peak - a remarkable accomplishment. However, price has fallen as much as 65% from that lofty $100 per share peak.
Like eBay - though at separate times strangely enough - Amazon completed a massive bear flag (or measured move pattern) which exceeded its targets into the October/November 2008 lows. Price is now snapping back from oversold conditions and is finding confluence resistance via the falling 20 and the flattening 200 weekly moving averages… though unlike eBay, the averages are shy of being in the ‘most bearish orientation possible’ (which would mean the 20 was beneath the 50 which was beneath the 200).
I added a bonus possible Elliott Wave count, which shows that we may have completed a full Elliott Wave impulse in AMZN, so you might be able to use this in your Elliott notebook as an ‘ideal example’ of a full Elliott Wave pattern.
I mainly wanted to shed light and counteract the seemingly logical investment thought “Hey, if everyone’s buying it, shouldn’t the stock be surging?” The answer is of course “not necessarily.” What seems ‘easy’ in the stock market usually is not, and what seems to make the most sense if often the strategy to lose the most money. For more examples, see CROX (”Hey, everyone I know wears Crocks shoes.”), Wal-mart -WMT (”Everyone I know shops at Wal-Mart.”) and Microsoft - MSFT (”Everyone I know uses Windows!”).
Stock trading is more complicated than it seems at first, and it can seem like “up is down” more times than not, but stick with it and the more you learn/experience, the better you’ll trade.
