Following a dramatic plummet off its annual peak in July, Amazon (AMZN) has been moving sideways, contained by its $1,700 and $1,850 regions. While support at the $1,740 region has surfaced in recent weeks, a bounce off this area could sink AMZN stock even lower by the end of the year, if history is any indicator.
To elaborate, the FAANG stock just ran up to its 80-day moving average, following a lengthy period south of the trendline. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, this signal has flashed four other times in the past three years. Two weeks after each signal AMZN was lower, averaging a loss of 5.12%, and negative 100% of the time. From its current perch at $1,746.52, a similar move would put the security back near its mid-March levels at $1,657.10 — well below recent support at the $1,740 area.
Daily Stock Chart AMZN
We mentioned last month the stock’s tendency to plummet in the month of December. In fact, according to White’s data, 70% of these monthly returns have been negative, with a 2.61% average loss.
Analysts’ optimism is still quite high, though. Twenty-nine of the thirty in coverage call it a “buy” or better, with only one “hold”. Plus, the consensus 12-month target price of $2,167.56 represents a new high for the equity, and a 24% premium to current levels.
For those wanting to speculate on AMZN’s next move with options, now is the time to do so. The security’s Schaeffer’s Volatility Index (SVI) of 20% sits in the 12th percentile of its annual range, meaning options traders are pricing in incredibly low volatility expectations right now. Plus, White’s modeling shows that an at-the-money AMZN put option could potentially return 138% over the next 10 days. In other words, prospective put buyers could more than double their money on an expected 5.12% drop in the shares.
Visit SchaeffersResearch.com to discover how you can use stock options to complement your investing portfolio.