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AMZN Premarket: Can Amazon Stock Finally Build Momentum?

On October 15, Amazon stock posted its best daily gain in over three months. Here is what has driven share price higher lately, and what factors could turn recent strength into a full-blown rally.

Amazon stock  (AMZN) - Get Amazon.com, Inc. Report has been showing signs of life once again. Although shares remain nearly 9% below the all-time highs reached in early July 2021, they posted the largest daily gain of the past three months on Friday: +3.3%, a solid 250 basis points more than the S&P 500  (SPY) - Get SPDR S&P 500 ETF Trust Report.

Could this finally be the spark that sends AMZN stock higher in the fourth quarter? The Amazon Maven digs deeper into this subject.

Figure 1: Amazon logo.

Figure 1: Amazon logo.

(Read more from the Amazon Maven: JPMorgan On Amazon Stock: 29% Upside Potential)

Why AMZN stock is up

It is somewhat rare for Amazon stock to be up more than 3% on a single day. Over the past five years, such gains have been delivered only once out of every 20 trading sessions, on average – about once per month. A sequence of four consecutive positive days or more, as was the case this past Tuesday through Friday, is also fairly uncommon: around once each ten business days.

However, it is hard to say for certain why AMZN has moved higher in the past few trading sessions. Some of the plausible reasons might include:

  • Stocks at large have rebounded in the first few days of October, following a late September selloff that “smelled” a bit too much like short-term profit taking.
  • Despite inflation expectations that remain high, interest rates have pulled back a bit from recent peaks. Lower yields tend to correlate with strength in growth stocks like AMZN.
  • Perhaps too much bearishness has built up ahead of the holiday season, especially given so many supply chain disruptions that could weaken the resolve of consumers in the fourth quarter. Maybe now is the time for investors to reconsider and buy the dip, when valuations have pulled back a bit – as experts from JPMorgan seem to suggest.

(Read more from the Amazon Maven: Amazon Stock Price Is Too High, Says This Expert)

What could drive AMZN higher

Looking forward, pay attention to a few events that could drive Amazon stock either higher or back to correction land in the near term.

First, the Seattle-based e-commerce giant is scheduled to report Q3 earnings on October 28. After expectations were reset during Q2 earnings season, it is unlikely that investors and analysts will be caught off guard once again by a possible moderation in e-commerce revenue growth.

The other catalyst, of course, is the holiday shopping season itself. Amazon has already kickstarted its Black Friday campaign with earlier-than-ever deals that could entice customers to act quickly. Early shopping would be crucial to ensure that late season purchases do not get caught up in port congestion.

Those who follow technical indicators might want to pay attention to the moving averages. Currently, AMZN share price sits just above the 50- and 150-day MA (see chart below), although it has been driven higher on lower-than-average volume. Can the stock find support at these levels?

Figure 2: AMZN versus 50- and 150-day MA.

Figure 2: AMZN versus 50- and 150-day MA.

Looking further down the road, AMZN shares could be lifted by other, longer-term factors. We talked about one of them recently on our channel: Amazon could increase how much it charges for Prime membership in the US next year. We estimate that a $20 dollar hike in annual fee could lead to nearly 15% growth in pre-tax profits.

Twitter speaks

Amazon stock is still within striking distance of entering correction territory again – i.e. a drop of 10% or more from the peak. However, this past Friday, shares climbed the most in three months. Is there a rally coming up?

Is the price right?

Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.

Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a free trial.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)