Online entertainer Netflix, Inc.’s (NFLX) stock doesn’t make small moves — it makes leaps.
This is why investors of all types need to stay on top of the Netflix stock chart to determine where the next 20% swing will take it — higher or lower. The last time that Netflix stock broke above the $120 level, it put in a last push higher before selling off more than 29% in a month’s trading.
This time around, the charts favor the bulls for another push even higher.
As of Friday, Netflix stock is trading just above $120 after rallying 17% in four trading days. The knee-jerk reaction is to sell shares here, thinking that they can’t move higher, but the technical picture is suggesting a higher target by year-end.
More Room to Grow for NFLX Stock
The first indication of a potential extension of this rally is the fact that Netflix is not currently trading in “overbought” territory. This term refers to the level of a stock’s RSI reading. In this case, Netflix stock’s RSI reading was as high as 75 in August, compared to a reading of 61 today (green circles in the chart below). Anything over 70 is considered “oversold” and usually marks a short-term top for a stock.
In Netflix’s case, the current RSI indicates potential for the shares to move higher before correcting.
Some simple regression analysis of Netflix stock’s price patterns reveals more upside. Again, the rally into August’s highs led Netflix stock to the top of its regression channel (noted by the red circle). Historically, any stock will either break out even higher or regress back to its mean (this is what analysts on CNBC mean by “mean regression”) when the top rail is hit.
According to this same chart, Netflix stock has room to rally to $140 before running risk of a mean regression (correction).
Finally, the third Netflix stock chart has to do with investor sentiment towards the name.
After bottoming in July, short interest on Netflix stock is on the rise again, indicating that the potential for a short covering rally is in the process of building. Each short covering rally needs a “trigger,” and in this case, it appears that a break above $125 may be enough to force short sellers back into the market as buyers to cover their positions.
Bottom Line
The current technicals are calling for the next 20% move in Netflix stock to be to the upside, with a target of $140. We may see some sideways action as the stock consolidates from its recent surge, but support should be in place around $110 to help make the bullish outlook even stronger.
Watch for any Santa Claus rally to be led by this tech star.
