Amazon shares have contracted more than 14 per cent during September after rising a robust 89 per cent by the end of August 2020. The shares have been on a tear as the company outperformed during the spread of Covid-19, providing next-day delivery as well as cloud computing. Implied volatility on Amazon shares has been rising in September after declining through mid-July and August. 

Seasonally, Amazon shares generally are mixed in October but outperform in November. 

Amazon shares upgrade at Bernstein

Amazon shares were upgraded to an outperform by equity analyst Mark Shmulik at Bernstein. Not only did Shmulik increase his rating on the company but he also increased its price target to $3,400 per share. The company believes that Amazon will continue to gain traction even after the pandemic as the key choice for shoppers. It also believes that Amazon will continue to expand its revenue streams into advertising as well as cloud networks. 

Implied volatility is rising

The downdraft in the share price has generated higher levels of implied volatility on Amazon shares. Implied volatility is a key input used to price options. Higher levels of implied volatility generally means that option traders expect greater movement in the price of the stock. Implied volatility on Amazon shares hit its 2020 lows at 25 per cent in February and June and were hovering near 45 per cent in late September. This compares to its 2020 highs near 65 per cent and its 2019 average near 20 per cent.

The seasonals are mixed

Historically, Amazon has had mixed results in October, but this changes in November. During the past 10 years, Amazon shares have increased 50 per cent of the time for an average gain of 3.9 per cent in October. November is a completely different story. The shares have increased 80 per cent of the time during the past 10 years for an average gain of 4 per cent.

Amazon stock technical analysis

Amazon shares have given back approximately 14 per cent of their 2020 gains in September, ahead of the Bernstein upgrade. Prices have pushed through support which is now resistance seen near the 10-week moving average at 1,799. Target support is seen near the 50-day moving average at 2,326. 

Medium-term momentum is negative as the moving average convergence divergence index (MACD) recently generated a crossover sell signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses below the MACD signal line (the nine-week moving average of the MACD line). The MACD histogram also recently sliced through the zero-index level generating a crossover sell signal. Short-term momentum tumbled, reflecting accelerating negative momentum. The relative strength index (RSI) has also declined rapidly from overbought territory (readings above 70) which also reflects accelerating negative momentum.

Amazon shares: how to trade them

Amazon shares have pulled back, providing an opportunity for investors to buy at lower levels. Bernstein has upgraded the shares and the price target, providing additional investor confidence. 

Seasonally, the returns that Amazon provides in October are mixed. While the AMZN stock analysis is negative, prices are likely to find a floor in September or early October and then rise throughout the balance of the month. This upward movement will come with additional volatility ahead of the US presidential election. 

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