Trade of the Day: Time to Bail on NFLX Stock?

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Netflix, Inc. (NFLX) — I recommended NFLX stock as the Trade of the Day on Aug. 21 with a buy under price of $106 and a target of $130. That objective was achieved on Dec. 2, netting readers a 23% gain in less than three and a half months.

For those still in the position, I see limited upside. In fact, I think now is a good time to consider shorting NFLX stock.

Subscriber growth for the popular video streaming service is expected to remain strong. While the number of subscribers added in the United States came up notably short in the third quarter, at 900,000 versus an expected 1.15 million, the 2.74 international subscribers added was ahead of the 2.4 million target.

Netflix is the clear leader in its space, but regulatory problems and competition from other streaming services like Hulu and Amazon Prime present risks. While S&P Capital IQ rates NFLX stock a “buy,” its 12-month target is just 3% above the current price at $128.

Recent sellers on balance and a MACD sell signal support a short sale, along with a double sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), at just over $130.

Sell NFLX short at $128 with a target of $112, the 50-day moving average, for a potential return of 12.5%. A stop-loss order should be entered at $132 to protect against a breakout and the possibility of theoretically unlimited losses.

As with all short sales, check with your broker for any special restrictions and their ability to borrow shares.

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