The Chart du Jour

Amazon - Is that a Huge Head and Shoulders?

March 12, 2000

Anyone who has read our April 1999 article "The Man Behind the Curtain and the New Keiretsu" knows how suspicious we have been of Amazon.com's various dealings, together with its venture capitalist Keiretsu parent, Kleiner Perkins Caufield & Byers. Of late Amazon has been groping for extra sources of cash while it slowly tries to reap the rewards of its Internet start-up investments. A few weeks ago Pets.com came public. Surprise, surprise: it promptly fizzled.

Friday Homegrocer.com, another Amazon holding, came public. While the 5-minute chart below of its first day trading shows that it was relatively well bid through the session, it did not exactly double or triple a la the Internet norm.

But why should either of these companies blast off? Everyone knows that Amazon.com holds a large stake in both, and if push comes to shove and Amazon starts coming up short of cash, guess who's going to be cashing in some of their chips? "Last one to the exit door is a rotten egg," the Amazon.com and Kleiner Perkins people must be shouting.

But one look at the Amazon.com chart itself looks somewhat ominous. Is that a huge head and shoulders top that we spy? If it is, there is an important neckline right around $60 a share that one should be attentive to. A break of that level would suggest under traditional technical analysis a downside target of $7 (the distance of the head at $113 to the neckline at $60 being $53, which one subtracts from $60 neckline to yield the eventual target).

Now some may feel that this is a pretty extreme interpretation, but trust me, the last time I saw a head and shoulders formation similar in magnitude and design as this one was in the late 1983 when gold had a head at $509, and neckline at $401, and a $292 target. Basically no one believed gold could go that low at the time.

But once that neckline gave way (and it did so with a relatively dramatic one-day swush), gold went more or less straight down for the next two years into a February 1985 low at $284.25. And look at where gold is today -- some 15-years later -- a shade away from unchanged to that level.

Now what would a 2-year bear market, let alone a 17-year variety, do to the curent frothy psychology of the equity market?

Keep a close eye on the $60 level in Amazon, and if it breaks, you should kiss both that stock and this market goodbye.

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