Amazon, Apple, Snap Stocks Consolidate In This Key Pattern: What To Watch For On The Break

Amazon.com Inc AMZN, Apple, Inc AAPL and Snap, Inc SNAP have developed inside bar patterns on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.

An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."

A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.

• Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
• For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.

See Also: How to Read Candlestick Charts for Beginners

The Amazon Chart: Amazon gapped down following its earnings miss but bulls came in and bought the dip and the stock closed Friday’s session up 2.19% off the open. On Monday, Amazon was consolidating the volatility with an inside bar on below-average volume.

Traders will want to watch to see whether Amazon breaks up or down from the pattern on Tuesday or if the stock creates a double inside bar. The stock has a small gap above near $3,380 and a larger gap above between $3,549 and $3,480, which are both likely to be filled at some point in the future. 

The Apple Chart: Like Amazon, Apple gapped down after its earnings print but bulls came in and the stock completely filled the range on Friday. On Monday, Apple looked to be in the process of printing a long-legged doji candlestick inside the mother bar, which indicates consolidation.

Bullish traders can watch for Apple to regain support of the eight-day exponential moving average for an indication the stock may break bullishly from the pattern. 

The Snap Chart: Snap also had a bearish reaction to its earnings miss and gapped down over 17% on Oct. 22. On Oct. 27, Snap fell to the $51.66 level and bounced up slightly and since the date has created inside bars. Snap has a gap above between $60.78 and $73.89, which coincides with another gap left behind on July 23 between the $63.74 and $69.64 range.

Bullish traders can watch for big volume to come in when Snap’s stock breaks from the inside bar pattern to gauge direction.

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