Amazon (NASDAQ:AMZN) struggled to power through October, as Amazon stock took a hit of nearly 20% throughout the month after starting out above the $2,000 level. While certainly some of the drop is warranted given the previous overbought technicals and rich valuations, not to mention somewhat disappointing earnings, the selling has now reached extremes and AMZN rebounded on Oct. 31.
And the comeback in AMZN likely won’t stop there, as investors can expect AMZN stock to find some footing and head higher over the coming months.
Amazon stock dropped almost 8% Friday following a mixed earnings report; its actual earnings-per-share were a highlight of the report, coming in at $5.75 per share and easily crushing estimates of $3.29 per share. However, revenues were a slight miss at $56.5 billion compared to consensus of just over $57 billion.
AMZN has now handily beaten earnings estimates for the past four quarters but Amazon stock has only risen slightly in that time frame. The combination of strong earnings growth and a somewhat stagnant Amazon stock price makes for better valuations.
Amazon stock is getting decidedly oversold from a technical perspective, as its nine-day RSI recently reached the lowest levels of the year before bouncing. Bollinger bands confirmed the oversold condition by dipping negative as well. The previous times this happened over the past year marked a significant short-term low in the stock.
AMZN stock also held the critical $1,600 support area. Shares traded down to $1,603 on Friday, before reversing sharply to close back near the opening price at $1,642.81. This doji formation, with AMZN stock opening and closing near the same price, is a strong indication of an impending trend reversal. Certainly a rally would not be unexpected given the massive selloff seen over the past few weeks.
Bottom Line on Amazon Stock
Seasonality further supports a rally in Amazon stock. Over the past 20 years, AMZN has gained an average of 8.1% in November with shares gaining 70% of the time. The impending holiday shopping season usually provides a tailwind for Amazon stock.
AMZN is still the unabashedly dominant player in the online commerce and web services space. Investors and traders alike should use the recent weakness to add AMZN stock to their portfolio. Traders can use $1,875 as an upside target and a meaningful break of the April lows of $1,350 as a stop out level.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
