FAANG Stock Finally Flashing Buy

AMZN stock is bouncing today after Facebook earnings

by Karee Venema

Published on Oct 31, 2018 at 12:51 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a brutal month for Amazon.com, Inc. (NASDAQ:AMZN), with the FAANG stock set to close out October with a 20% loss, its biggest monthly drop since November 2008. The swift decline took a notable slice out of Amazon's market cap -- which topped $1 trillion for the first time in early September, but closed last night at $748.3 billion -- but also brought the shares back to a key trendline that signaled a buying opportunity on AMZN in the past.

At this week's intraday lows, AMZN stock was trading within one standard deviation of its 320-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the last time the equity came this close to its 320-day trendline after a significant stretch above it, it was up 6.76% five days later, and 14.62% one month out.

amazon stock daily price chart on oct 31

Amazon shares have taken a strong bounce from this trendline in today's trading -- up 3.4% at $1,582.69, on a positive earnings reaction for Facebook (FB). The FAANG stock's longer-term trend has been higher, and it continued to hold above its 25% year-to-date return level even at this week's lows near $1,476.

Short sellers have been piling on lately, too, which has likely exacerbated headwinds for Amazon. Short interest surged 17.7% in the most recent reporting period, to 5.12 million shares -- the most since mid-May. This suggests there's some sideline cash available to help fuel a bigger bounce.

And those looking to play Amazon may want to consider using options. The stock's Schaeffer's Volatility Scorecard (SVS) reading arrives at 98 (out of a possible 100), meaning AMZN has tended to make outsized moves over the past year, relative to what the options market has priced in -- a boon to premium buyers.


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