The day after my Jan. 22 analysis, Netflix announced earnings and the stock screamed higher to the tune of 42%, squeezing short-sellers hard.
The massive post-earnings stampede took the stock to its longer-term 50% Fibonacci retracement of the swing from 2011 highs to September 2012 lows, and hence a potential area of resistance. Through the same longer-term lens, the next big Fibonacci retracement area of resistance at 61.8% is another 16% higher from current levels.
On the daily chart, the current technical setup becomes much clearer. Since the big rally, Netflix has now spent a few days consolidating sideways, which in this context is bullish at the margin. This is an island of sorts; the price action cluster from the past two weeks is essentially also free floating, as the large gap below from Jan. 24 looms (blue box on chart) and there is no real resistance above current price levels.
A breakout past current levels could get the stock moving toward $208, which is the top of an unfilled gap dating back to September 2011, and which also happens to coincide with the aforementioned 61.8% Fibonacci retracement level.
At the same time, the stock is markedly overbought from a momentum perspective if we consider oscillators such as stochastics and the RSI. As I often point out, however, in strongly upward-trending tapes (such as is the case with Netflix), momentum oscillators don’t offer the best of insight, as they can remain overbought for longer periods of time.
Netflix also is very extended from its 200-day simple moving average, currently a cool 122% above it. As such, a mean reversion move closer to its moving averages is possible.
In summary, should NFLX pass current levels, more upside is likely, while weakness in coming days might force the stock to mean-revert at the very least a few percentage points to the downside.
The upside for both bulls and bears is the defined risk of any trades given the trading range of recent days.