The definition of speculation may be initiating a short position in Amazon (AMZN) - Get Report , but there are technical indications on multiple timeframes that suggest a good risk/reward trading opportunity, and aggressive action is often the most profitable.
The stock is up over 75% year-to-date, initiated by a breakout from the triangle pattern it had been trading in for much of 2014, and a "golden cross" of the 10-week (50-day) moving and the 40-week (200-day) moving averages. There was a sideways period of price action in May and June and a brief pullback in August, both signaled in advance on the weekly chart by simultaneous overbought readings of the relative strength index and the volume-weighted money flow index. These coordinated indications reflected a loss in price and money flow momentum, and there is currently another set of these readings in place on this timeframe.
Price action over the last two weeks has been relatively flat above support at the $660 level and contained to a narrow range. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator, and both have been moving in bearish divergence to price for the last three weeks. Accumulation/distribution crossed below its 21-day signal average, and Chaikin money flow, a 21-period average of accumulation/distribution, is below its signal line and trending lower.
Amazon is a good risk/reward speculative short play after a close below the $660 support level with a position size that accommodates an initial stop above recent highs and a profit objective targeted at the rising 50-day moving average. The key component, however, of this and every trade is preserving capital.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.