Click on the chart to enlarge it.
Let's now turn our attention to the underlying stock upon which we plan to buy a put option. We're going to look at Amazon, because it's a significant component of the Nasdaq index, which in turn has shown us that it's set up for a potential “hit”.
It's important to note that a weekly analysis of Amazon indicates a market having turned bearish. The weekly chart isn't shown, but prices are below both the NMA and Fast NMA, and NMC is below zero as well as being below both its NMA and Fast NMA—all signs of a market in a potential long-term (weekly) bearish trend.
Let's now focus on the daily chart of Amazon, where our analysis reveals the following information:
First, it was coming off the preliminary and profitable “cross kiss” (explained in workshop) ZeroHit entry on the 15th (ZeroHit signal existed on 13th and 14th, shown as point A in the middle sub-graph of NMC2).
Meanwhile, the Fast NMA had cut below the Regular NMA and prices have come back to the Fast NMA (the large circled arrow above prices on July 20th).
Further, the Fast NMA of NMC had crossed below the Regular NMA of NMC (shown as down arrow in the bottom sub-graph), and as of the 20th NMC was working on a ZeroHit and recycling back towards the dual moving average resistance of the NMAs of NMC just above the zero line (shown as B and B' in sub-graphs 1 and 3).
Lastly, notice how the boundaries around the NMA on prices are coming out of a "pinch” formation. This should offer us some added volatility punch when and if prices get rolling to the downside. All in all, a pretty convincing bearish set of circumstances at the daily level.
(This is the end of Part 3. Go to Part 4.)
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