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After months of coronavirus-induced delay, Amazon.com Inc.'s (NASDAQ: AMZN) Prime Day – two days, really – is finally here. As we speak, the $1.7 trillion online juggernaut is hurling out deals left and right, and millions of shoppers are snapping them up just as soon as they come online.
Prime Day was, and still is, a gambit to boost summer sales and ultimately AMZN prices during the slow dog days of summer.
But just check out these numbers from Internet Retailer: For the 48-hour Prime Day period in 2019, Amazon sold more than 175 million products worth $7.16 billion – 68% of which came out of Amazon's own inventory, as opposed to others' "Marketplace" sales.
Prime Day has gotten so big it's starting to "spill over" – other retailers are doing a brisk online business with deals of their own, making it kind of an Internet-wide shopping holiday.
Now, investors have to be watching this and thinking, "Hmm… sounds good to me! Maybe I should throw some shares of AMZN in my 'shopping cart.'"
On the surface of it, it does sound good, but not so fast: There's a right time and a right way to go about putting on or adding to an Amazon position.
Here it is…
History and the Data Say: "Not Yet"
There's no doubt about it: Prime Day has tended to boost revenue, in the short term, for Amazon. Sales shoot up, but the stock doesn't.
Lots of retail investors and traders who've hit the markets with the intention of "playing" Prime Day for profits found that out the hard way.
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There's a simple reason. The broader market essentially "played" Prime Day long before it actually happened.
Here's what I mean by that.
The market is the most efficient discounting machine. You can usually surprise it once with a tactic to boost revenue, but from there on out, events like this – even $7 billion days – are subject to the "buy the rumor, sell the news" phenomenon.
Apple Inc. (NASDAQ: AAPL) is another perfect example, with its product release dates and big Silicon Valley tech events, like yesterday's event announcing its iPhone 12 launch.
At one point, years back, these did serve as rocket fuel for AAPL shares. Nowadays, they usually serve to ignite "sucker's rallies" that then fade into much better opportunities for those willing to wait.
Look at Amazon's Prime Day period performance.
After the first Prime Day in 2015, AMZN shares surged by a whopping 15% in the 10 days following the kickoff. That's more than 700% better than the stock did on any given 10-day period since 1998.
But ever after, Prime Day has been a non-event for investors.
This Prime Day looks like no exception. The stock staged a 4.75% Monday rally… and was down 0.15% as Prime Day started. That's a classic "sell the news" letdown, and if you're reading this, it means you dodged it.
Hold off on hitting the "Buy" button for now, and try this instead. I'm calling it the "Prime Day Price Match."
Get Amazon on Your Terms
I love doing this for pricey stocks, and you can do it, too. Not a lot of investors realize this, but you can actually name your own price for nearly any stock you can think of.
You can essentially lowball the market. If it were me, I would target buying the stock in one of two ways at the $3,200 level.
TOXIC STOCK WARNING: You very well could have shares of this absolutely radioactive stock in your portfolio right now. Watch this and find out…
You can use a limit-price strategy, for instance. It's really easy, and it doesn't require any trading at all.
Simply place a limit order to buy the number of shares of Amazon you'd like to add to your portfolio with a Good-Till-Canceled (GTC) limit order of $3,200 per share.
This targets a purchase price that is about 11% lower than Monday's closing price. Sure, the stock could run a little higher over the next few days. But history tells me that the stock pulls back after its initial bump.
If you'd like to trade options – and get paid for the time you wait for AMZN shares to drop to your price – you can sell puts at your "name your price" level.
This approach is a little more complex, as you must have an option-approved account with margin features, but the execution is simple.
Simply sell an AMZN Nov. 20, 2020 $3,200 put for every $100 shares of Amazon that you would like to purchase at $3,200. Now remember, each contract represents 100 shares, so selling one contract means that you are obligated to purchase 100 shares at $3,200 per share (yes, that's $320,000!).
Now, selling those puts brings in around $11,200 in premium, which is yours to keep. If the stock doesn't hit $3,200 between now and the market's close on Nov. 20, then you add that to your Amazon "fund" and try again.
Using this strategy, which is a little more complex, would take another 3.5% from the price paid for each share of Amazon while allowing you to name your price.
With all that said, I'd be shirking my duty if I didn't tell you where I think Amazon will go as we head into the holiday season, albeit one that's different than others before it.
POPULAR POISON: Nearly 22 million shares of this stock trade hands every day. Just make sure those hands aren't yours, because it's terrible. Watch this for the name of the stock…
Like many retailers, Amazon sees a spike in revenue and its stock price. That alone makes Amazon one of my top stocks to trade during the Labor Day through Thanksgiving period.
Understand though that the retailers have usually run their course by the time Thanksgiving hits the calendar.
That means that while bargain shoppers are buying items on Black Friday, nimble, seasoned traders are selling retail stocks.
This is the case with Amazon. The chart above displays Amazon's monthly performance for the last 20 years. As clearly seen, April and November are the best months to hold this stock; December is the worst.
In other words, don't fall in love with your Amazon shares. History tells us that we'll likely want to be taking our profits and moving to more profitable areas of the market in December.
That's fine, though. I'll be here telling you exactly where the next surge in performance is set to take place and how to capitalize on it.
Oh, and Happy Prime Day!
In the meantime, don't forget to watch my colleague Tom Gentile's presentation on something he calls the "Four-Day Profit Cycle"…
It's an extremely fast pattern that's outperformed the S&P 500 by nearly 17% in the first eight crazy months of 2020.
Four days. That's right – making these moves correctly could possibly double your money in 100 hours or less. Read how…
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Strikepoint Trader and contributes to Money Morning as the Quant Analysis Specialist.