More News Selling
The market Wednesday continued to
distribute stocks reporting positive news. As an intermediate-term trader, I
take this evidence as all the more reason to stay in cash.
After Tuesday’s close, Amazon.com
reported a Q3 pro forma loss of 25 cents a share vs. a 26-cent loss a year ago
and stomping Wall Street expectations of a loss of 33 cents, according to First
Call/Thomson Financial. However, as Reuters reported, the results did not affect
Standard & Poor’s credit rating or outlook for the Web retailer. Earlier
this year, a Standard & Poor’s analyst described Amazon’s credit as
“extremely weak and deteriorating.”
Shares in Amazon
(
AMZN |
Quote |
Chart |
News |
PowerRating) closed up
2 5/16 to 31 7/8 on nearly four times its usual trade. However, looking at
the intraday action, I think Tuesday’s action looks more distributional the
accumulative.
The stock rallied to an intraday high
of 36 5/16 by 11:42 a.m., which coincided with an intraday volume spike, then
headed south the remainder of the session. Amazon closed below its open of 34,
closed near the bottom of the day’s range and closed below the day’s Volume Weighted Average Price
(VWAP) of 34.066. Even if you allow for the gap above the close, the stock
closed in the bottom 35% of the day’s true
range.
Amazon behaved similarly on Tuesday,
rallying to its intraday high in the first half of the session, then declining
from here. Someone is using these rallies to work off a position.
For more on how to interpret the
closing price of a stock in light of its range, VWAP and other factors, check
out Kevin Haggerty’s lesson, Selection
Of Trades By Identifying Buying and Selling Pressure and his Oct. 24
commentary, Check
Your Index Screens.Â
B2B player webMethods
(
WEBM |
Quote |
Chart |
News |
PowerRating)
slumped ahead of positive news. Revenue surged 310% to $45.7 million for the
second quarter of fiscal 2001. The net loss for the quarter, excluding
acquisition and non-cash charges, $0.00 per share vs. First Call’s consensus
estimate of an 11-cent loss. Let’s see how the stock performs on Thursday.Â
For intermediate-term momentum trades,
the stock should have cleared its 50- and 200-day moving averages and its mid
level, defined as half of the sum of the pre-correction intraday price high and
correction intraday low.Â
All stocks are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.
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