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AMZN: The King of the Momentum Stocks Rolling Over

Exactly 10 days ago, I had predicted in the trading room that the undisputed King of the momentum stocks that has been lifting the leading index, the Nasdaq 100, would drop by over 4% by the end of the following week. While it looks like my timing was off by a few trading sessions, one of the remaining holdouts of the top, over-weighted components of the Nasdaq 100 (the 3rd largest component at a 7% weighting) seems to be playing out as expected so far, albeit just a hair behind schedule, following the recent breakdown below this bearish rising wedge pattern as seen on the 30-minute time frame.

While a reaction off the 806 area is likely, should that support level get taken out with conviction, a continued move down to at least the 790.40 area would be very likely. If so, such a correction in the leading stock of the leading index is very likely to have bearish implications as the selling would be likely to spillover into the other mega-cap stocks that seem to be doing most of the heavy lifting, or more accurately, holding up of the market in recent months. The key support levels to watch in the top components of the $NDX were covered in this Stock Market Analysis video posted last Thursday.

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Oct 17, 2016 2:12pm|Categories: Equity Market Analysis|Tags: |9 Comments

9 Comments

  1. Art October 17, 2016 2:17 pm at 2:17 pm

    Excellent Call !!!!

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  2. retireat60 October 17, 2016 2:21 pm at 2:21 pm

    i took this idea and purchased week out puts and they have paid off handsomely so far. very pricey and big movers. i am currently in the oct 21 817.50 from last thursday at $10.25.
    great call randy.

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    • rsotc October 17, 2016 2:29 pm at 2:29 pm

      Awesome! Congrats on the trade so far. I didn’t short AMZN personally for a few reasons, including wanting to see the NDX & SPX break those key support levels with conviction first but I also already have my fill of short exposure on the NDX & quite a few related stocks so watching AMZN mainly to see if/when the leading stocks begin to roll over & break support as that will likely bring the broad market down with them. G-luck on that trade & as I’m sure you know, the theta-burn on those puts really starts kicking from here so you might want to take the money & run if AMZN gets even close to that 806.34 support (if not sooner) or at least roll them.

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      • retireat60 October 17, 2016 3:36 pm at 3:36 pm

        please explain “roll them”, that requires selling one and buying another correct?

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        • rsotc October 17, 2016 7:58 pm at 7:58 pm

          Yes, as jjevens said. Theta is a measure of the rate of decline in the value of an option due to the passage of time. It can also be referred to as the time decay on the value of an option. If everything is held constant, the option loses value as time moves closer to the maturity of the option (as per investopedia). The term theta-burn is trader slang typically referring to the very rapid erosion of an remaining premium leading up to the expiration date, typically in the last week. If you think that AMZN is headed much lower in the coming weeks+, you could close your Oct puts & roll that approximate amount into another put option with a longer expiration date.

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    • jjevans October 17, 2016 3:43 pm at 3:43 pm

      Yes. Move them out to a different time-frame. Weekly options are very volatile especially towards the end of the week.

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  3. retireat60 October 17, 2016 2:22 pm at 2:22 pm

    correction: oct 21 827.50 puts at $10.25

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  4. alshaw October 17, 2016 2:22 pm at 2:22 pm

    the big q is are you short

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    • rsotc October 17, 2016 2:36 pm at 2:36 pm

      No, not directly short AMZN alshaw (posted as such in the trading room in the thread on the 7th) but indirectly short via the Q’s which will likely follow AMZN’s lead (and so far has more or less). Semiconductor still one of my biggest short sectors right now though with more meat on the bone than an AMZN short IMO. Still awaiting those “flashpoint” supports to go with conviction on all the major stock indices before getting adding much more short exposure though.

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