Amazon: A Long-Term Buy, Short-Term Sell
Stock traders and investors looking to add Amazon to their portfolio may want to wait for a better price before buying shares. There are still nine trading days left until April seasonality begins to kick in. A lot can happen with Amazon in that time frame as the past several weeks has shown.
Smaller investors might be better served in buying AMZN stock after the split when shares prices are 5% the price they are trading at currently. Buying 1 share of Amazon now would cost about $3,000. One share of AMZN after the split would only be around $150 if shares stay near the current levels.
Options traders may elect to sell out-of-the-money puts to position to be a buyer at lower levels while collecting option premiums now. Selling AMZN May $2,800 puts at the current price near $170 would bring in $17,000 in option premium for each contract sold. It would obligate the seller to be a buyer of AMZN stock at $2,800 if shares close below that price at May expiration.
Shares of Amazon (NASDAQ:AMZN) put in quite a performance last week. AMZN stock opened on a down note but then rallied nearly 14% higher on Friday. Certainly, some of the rallies were in sympathy with the overall market.
The impending stock split and increased buyback announcement also helped put a bid in the stock. The rally, however, has now come too far, too fast. Look for a pullback in AMZN over the next few weeks before it ultimately makes a move to fresh new highs.
Amazon announced a massive 20 for 1 stock split on March 9. This follows on the heels of a similar stock split announced by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Remember that GOOGL stock initially rallied sharply on the news. Since then, however, Alphabet had fallen back to lower levels. I expect a similar price pattern to emerge in AMZN stock as well over the next few weeks.
The Amazon stock split will take place take place June 6. Holders of AMZN stock prior to that date will end up with 20 times the amount of shares they held before the split. The share price, everything being equal, will be only one-twentieth the price before the split.
The company also authorized a 10 billion dollar stock buyback on March 9. This was double the previous buyback amount. Both of these moves helped to put a floor in the price of Amazon stock after shares reached the lowest levels of the past year near $2,800.
The long-term lows may finally be in for Amazon. The euphoria surrounding the stock split, however, may be fully priced in on a short-term basis as well given the sharp rally.
Technical Take On AMZN Stock
AMZN stock is fast approaching overbought readings on a short-term basis. Its nine-day RSI is nearing 70 once again. The MACD has gotten back toward recent highs. Its Bollinger Percent B just crept back over 100. Likewise, Amazon shares are trading at a big premium to the 20-day moving average.
The previous times all these indicators aligned in a similar manner marked significant short-term tops in Amazon stock.
More importantly, AMZN is right at a major resistance area at $3,225. This follows a sharp, four-day run-up that propelled shares nearly 400 points higher.
drop back toward the 20-day moving average of just under $3,000 would be the most likely scenario. Certainly, a re-test of the lows near $2,800 is not out of the question either.
Seasonality shows that April is by far the best performing month for AMZN stock over the past 20 years.
Shares have risen 79% of the time during April in the prior two decades with an average gain of just under 9%. March showed the second highest gains of 4.4% in that same time frame. Since Amazon is already up 5% so far this month, a pullback may be in the offing before the end of March.
