Amazon stock analysis for May
Will Amazon continue to outperform next month?
0'>Amazon continues to be the darling of the market. It appears to be the company that is most suited to bring people all the goods they need during quarantine. Not only does the company have one of the world’s largest logistics operations ranging from air-cargo to customer end-point delivery, but it also has a vast online grocery chain, headlined by Whole Foods and Fresh Direct.
So, what’s going on with its share price? Implied volatility on Amazon shares has eased as the stock broke out. The current reading of 48 is elevated, which means that price action will remain volatile. The technicals point to higher prices as momentum continues to accelerate higher.
Historically, Amazon shares rise in May. Over the past 20 years, the stock price has shown positive performance 70 per cent of the time for an average monthly gain of 3.4 per cent. Let’s see whether this will be the case this year.
Will the shares remain volatile?
Amazon’s share price will likely remain volatile which can be costly. With the stock price at $2,400 and implied volatility of 48 per cent, investors should expect daily 3 per cent moves, which equates to a $72 move per day.
Amazon stock technical analysis
0'>Amazon shares have broken out and are poised to test higher levels. The surge in price action in the middle of April pushed prices through resistance levels, which were the prior all-time highs made in February. The strong move in sentiment is confirmed with a higher close in the last week of April or the first week in May. The 10-week moving average also hit a fresh all-time high, which means the upward sloping trend remains in place.
Short-term momentum is positive as the fast stochastic rocketed higher, after generating a crossover buy signal. The current reading on the fast stochastic is seen near 86, which is above the overbought trigger level of 80, and this could foreshadow a correction. The overbought concept is also reflected by a weekly relative strength index (RSI) reading above 70, which is the overbought trigger level. Readings on the RSI below 30 are considered oversold while readings above 70 are considered overbought.
What is your sentiment on AMZN?
Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram also generated a crossover buy signal, as it pushed through the zero-index level.
AMZN stock analysis: the bottom line
Amazon should continue to outperform as the company is poised to continue to take advantage of the current “new normal”. Amazon might experience some pull-forward profits due to the quarantine, but the falloff might be minor once the cloud is lifted.
The technicals point to higher prices as momentum has turned positive. The breakout on the share price should target the $2,900 level. Investors should be concerned with the current elevated levels of implied volatility. With the stock price expected to move $72 per day, investors should consider prudent risk management techniques.
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