Amazon stock analysis for July: the share price continues to go higher

Implied volatility has declined but the shares are still more volatile relative to their historical levels

Amazon shares continue to surge, hitting fresh all-time highs throughout June. The stock dropped 26 per cent in March as the United States began the process of shutting down. Following this brief bear market drop, the stock price went on a tear, rallying 67 per cent since hitting its lows. 

Amazon appears to be one of the few companies that have benefitted during the lockdown as not many companies were able to bring merchandise directly to its consumers. Its Q1 revenues were very strong. The average target price for the stock is $2,750, and the high estimate of $3,300. 

Volatility should ease

As Amazon share price hit all-time highs the implied volatility on the shares began to collapse. After hitting a high of 77 in March, the Amazon VIX has slid to 35, falling by more than half. While the number has declined substantially, it still remains well above the average rate of 26 seen in 2019. This will likely continue to keep the shares somewhat more volatile relative to their historical implied volatility levels over the past 12 months.

Seasonals are positive

Historically Amazon shares have rallied in July, likely as a result of investors trying to purchase the stock ahead of Q2 financial results. During the past 10 years, Amazon’s share price has climbed 80 per cent of the time for an average gain of 5.8 per cent. During the past  five years Amazon’s performances shows returns that are also up 80 per cent of the time for an average gain of nearly 7 per cent.

Amazon stock technical analysis

The share price continues to accelerate higher. The Relative Strength Index (RSI) surged to fresh 18-month high in June. The current reading on the RSI near 78, is well above the overbought trigger level of 70 and could foreshadow a correction. The RSI reached a level of 84 during the last sustainable rally in August of 2018, which means there is still room for the share price to accelerate.

Medium-term momentum remains positive as the MACD histogram prints in positive territory with a rising trajectory which points to higher prices. Short-term momentum is at elevated levels and the fast stochastic recently generated a crossover buy signal. The current reading on the fast stochastic is 93, well above the overbought trigger level of 80 which could foreshadow a correction.

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AMZN stock analysis: the bottom line

Amazon continues to roll and a correction in the stock would likely come in tandem with a decline in the broader markets. The company along with Microsoft and Apple are driving investor sentiment. Amazon continues to innovate and expand in the cloud space going head to head with Microsoft. 

Momentum is very strong but both the RSI and Stochastics are in overbought territory. 

The seasonals are very strong in July, but taking profits ahead of earnings might be prudent.

Look for the share price to continue to rise until the RSI reaches 84.

Amazon.com Inc
Daily change
90.29
Low: 88.28
High: 90.7

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