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Buy or Sell Amazon Stock In July?

After a solid month of June, can Amazon stock keep up the pace and deliver more gains in July? The Amazon Maven looks at what could drive share price in the next few weeks.

With only a few days left in the month, Amazon stock  (AMZN) - Get Amazon.com, Inc. Report has been having a great July – up 5.5% in just about four weeks. Gains in AMZN have topped the S&P 500’s and peer Apple stock’s by more than five percentage points each. See chart below.

Figure 1: AMZN chart on June 25.

Figure 1: AMZN chart on June 25.

But it is now time to focus our attention to the future. The Amazon Maven looks at historical trends and short-term catalysts to figure out how shares of the cloud and e-commerce giant may perform in July.

Read more from the Amazon Maven: E-Commerce is On Fire, Amazon Stock Should Benefit

Amazon stock: seasonality and dip buying

The chart below illustrates Amazon’s gains or losses over the S&P 500’s month-by-month since 2011. The numbers represent “average alpha” (i.e. returns in excess of the benchmark).

Observe that July has been a solid month of returns for AMZN, although a bit less so in the past five years (not depicted in the graph). For the past decade, Amazon shares have topped the performance of the S&P 500 by over 4%, historically better than all months but January and April.

The fact that all seven months between March and September have, on average, been alpha generating for Amazon might make sense in the context of the shopping seasons. The Spring could mark peak investor sentiment ahead of July’s Prime Day, while the Summer tends to be bullish ahead of Black Friday, Cyber Monday and the end-of-year festivities.

Figure 2: Average monthly return vs. S&P500 (seasonality)

Figure 2: Average monthly return vs. S&P500 (seasonality)

So far, history suggests that July could be a good month for Amazon stock price. However, I have also observed that buying shares on dips of at least 15% tends to produce the highest returns. Unfortunately, AMZN is now flirting with all-time highs, after delivering 20%-plus annual returns in 2017 through 2020.

Read more from the Amazon Maven: Amazon Stock Nears All-Time Highs: What To Do Next

Amazon stock: catalysts

Historical price action alone is not enough to help determine what might happen to AMZN next month. Investors should also consider catalysts related to business fundamentals and macroeconomic factors.

On the plus side, the market at large seems to be undergoing a modestly bullish period early in the Summer. Volatility has reduced drastically as yields have stabilized (a positive for growth stocks), with only a brief market panic attack registered around the date of the Fed’s monetary policy announcement. If “left alone”, AMZN is likely to rise over time.

However, there is also the bearish side of the argument. Prime Day has recently ended, and any potential sentiment boost caused by it could dissipate soon. I have discussed how Amazon stock tends to perform more poorly than average one month after Prime Day (see chart below).

Figure 3: Median 1-month forward return in AMZN.

Figure 3: Median 1-month forward return in AMZN.

The wild card will be earnings season, which kicks off mid-month. Amazon is expected to report second quarter results at the end of July. Will the company impress Wall Street and send share price surging? Or will investors “sell the news” of what has been a strong period of e-commerce activity throughout the pandemic?

Keep in mind that this will be Andy Jassy’s first earnings season as CEO, now that founder Jeff Bezos plans on stepping down during the first week of July. The transition alone could be enough a reason to instill optimism (or skepticism) in Amazon investors.

Twitter speaks

Time to consult your crystal ball: how will Amazon stock behave in July? Leave your vote below and follow @AmazonMaven!

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(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)