Amazon, Crocs, Starbucks Stocks Pause To Gain Power: How To Play A Break Of This Pattern

Amazon.com, Inc AMZN Crocs, Inc CROX and Starbucks Corporation SBUX 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.

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The Amazon Chart: On Tuesday, Amazon reacted to a bullish double bottom pattern printed over the two days prior and shot up 2.8%. On Wednesday, the stock consolidated the move higher by printing an inside bar on the daily chart and on lower-than-average volume. Traders can watch for a break up or down from Tuesday’s mother bar on Thursday.

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The Crocs Chart: On Nov. 15, Crocs made a new all-time high of 183.88 and has since fallen into a long period of downward sloping consolidation. On Tuesday, Crocs bounced upwards and attempted to make a trend change by popping up over the Dec. 3 high-of-day but failed. Crocs then printed an inside bar on low volume over the course of Wednesday to consolidate.

The Starbucks Chart: On Dec. 1, Starbucks reversed course after bouncing off the $108.55 level. The stock has since shot up about 7% and has made a series of higher highs but without printing a high low. On Tuesday, Starbucks gapped up at the open and attempted to close a gap above on the chart but wicked just below the level. On Wednesday, the stock consolidated the move on lower-than-average volume.