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Amazon.com earns institutional trust!

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I have to admit, I counted Amazon.com out months ago, but after a previously successful trade for bulls at the premierinvestor.net site a couple of weeks ago for a nice little short-term gain, we profiled the stock as bullish again back on April 16th. Last night, the company reported earnings that beat the Street's estimate and we set some test for Amazon.com (NASDAQ:AMZN) $16.56 +17.78% and both have been passed with flying colors. This should have bulls wearing a smile on their face and raising stops to profitability. Volume of 22.1 million shares has easily passed our "test" for volume above 15 million to hint to us that institutions are still interested in the stock and capable of driving price higher.

Amazon.com Chart - Daily Interval

The MARKET has responded favorably to Amazon.com's (AMZN) earnings and raised guidance and the stock has surpassed two of the tests I set for the stock as volume has broken the 15 million mark (a level I set to show institutional interest) and mid-point of regression has been broken to the upside. Short-term traders will be looking for some resistance at 100% retracement of $16.98, but a 17% gain has been rare for bulls and a nice treat from AMZN. With MACD ramping higher, we see from similar technicals, the stock has wanted to trade the upper level of regression in following weeks. A good strategy for bulls looking for greater gains is to raise a stop just under the mid-level of regression at $15.85 to help try and assure gains. Another strategy we've talked about in the past is to sell partial positions on today's strength, then hold remainder with higher target of $18.48 and trailing stop of $15.85.

Not all that bullish

While comments have been tilted a bit to the bullish side in AMZN, last night at PI and then this morning in the market monitor on OptionInvestor.com, I profiled a bearish trade in Computer Associates (NYSE:CA) $18.80 -1.26% on the break below yesterday's "inside day." We've talked before about the trading technique of the "inside day" and this morning's early weakness in the broader markets had me looking at this stock for bearish entry. As the session has recouped earlier losses, Computer Associates (CA) has edged to a session low.

In last night's wrap, we discussed the Wall Street Journal article regarding building short interest in the New York Stock Exchange and Computer Associates (CA) was one of the most heavily shorted stocks in the recent month. While our first test for "weakness" to trigger further weakness was yesterday's low and break below the "inside day," there's still work to be done.

Computer Associates Chart - 60-minute interval

The above chart is a 60-minute interval chart with retracement "fit" from the daily chart to reflect the levels we felt were being traded. Short interest has mounted in the stock in the recent month and last night we felt that the bulk of the shorts were between $20-$22. To get the needed break lower, bears want to see bulls cave in on a break below the $18 level. Retracement of $18.32 has been support. Today's volume has been light and we've noted in the market monitor it looks like a good sized short came into the stock again today at $18.97, almost as if he/she was pressing the stock to get the break of yesterday's lows. Bears are an "evil" bunch and tend to pick on weak stocks that lack defenders. Traders will play these observations and can have success, but disciplined trading is a must. The "inside day" brings some of that trading discipline to the table and looks to be a good strategy to have implemented today.

Jeff Bailey
Senior Market Technician
Option Investor

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