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Thomas H. Kee Jr., is President and CEO of Stock Traders Daily and author of 'Top of the Market to You!' Mr. Kee's reports and analysis are currently featured by Reuters Research to their institutional clients. He serves on the board of many companies and provides economic analysis and... More
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  • Stock Traders Daily Advised Clients To Buy AMZN 0 comments
    Mar 5, 2014 1:11 PM | about stocks: FB, AMZN

    Stock Traders Daily recently recommended Amazon (NASDAQ:AMZN) as a buy to its clients, this article will include the conditions upon which that was recommended, but in addition this article will attempt to reveal facets of this business that are often overlooked by individual investors. The goal, in addition to discussing the call to buy Amazon particularly, is to help individual investors find opportunities like this on a regular basis. They say if you can teach a man to fish, you have fed him forever.

    First, I have been widely publicized as a critic of Amazon based on valuation. I criticized earnings and price appreciation in particular, but until recently Amazon was a darling. In recent months, the perception has changed, but that also may be cyclical because its busiest season, the holiday season, is almost a year away. Like other retailers, Amazon goes through cycles, and if there's no compelling reason to buy the stock it may come under pressure. Because the holiday season from last year is behind us, some investors might consider Amazon to be in a state of limbo.

    When this happens, it can create opportunity, even for critics like myself. In order for that to be true, however, the critic must first remove his bias. The objective needs to be determined before the observation is made. In this particular case, our objective was to make money. It was not to own Amazon because we believed Amazon was a great company, or that we like Jeff Besos, it was only to make money. Because our objective was as simple as that, our approach to determining proper entry levels for this investment was also very simple.

    The problem most investors face is that they fall in love with one stock, and they tend to not look beyond what they are in love with. Usually, that comes on the heels of a successful trade. Many people have that feeling today with Facebook, because Facebook (NASDAQ:FB) recently increased aggressively. They are falling in love with it, and instead of looking for other stocks that have the opportunity to increase aggressively, investors tend to have blinders on after successful trades.

    I remember my uncle having this exact problem because we made about 200% in laser eye surgery stocks back in the 1990s. We had a great run, but he would not let it go. He kept buying these laser vision companies, and they soon went out of favor. He did this because he fell in love with the trade, but love is an emotion, and there is no place for that in this business.

    Without a doubt, I'm not in love with Amazon at all. We're in this to make money, nothing more, and according to our correlation filters Amazon triggered based on a test of longer term support as that is defined in our real time trading report for Amazon. Our recommendation to clients was based on price, given that test of support, not on the valuation metrics or our appreciation of management.

    By focusing on price, we also effectively remove golden handcuffs like those some investors might currently have bound to them after investing in Facebook, and like my uncle did back in the 1990s with laser vision stocks. Golden handcuffs can be the worst thing for individual investors, and interestingly those are usually the direct result of a successful trade.

    In order to make money consistently, individual investors should avoid the temptation of falling in love with any particular company. In our situation with Amazon, I am still a critic, but because the stock tested our longer term support level we were buyers, and we intend to hold that position until such time as the stock tests our longer-term resistance level, or profit stops are hit.

    Lastly, according to our real time trading report for AMZN, we do see upside potential in the stock, but we prefer to buy near tests of longer term support because by doing that we also have clearly defined risk controls. Trading in the middle of the trading channel is not advised because risk controls widen considerably when mid-channel trades are made.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receive compensation from the publicly traded companies listed herein for writing this article.

    Additional disclosure: AMZN was recommended as a buy to clients of Stock Traders Daily.

    Stocks: FB, AMZN
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