Wednesday’s bullish reversal price action which saw most equity indices and sectors close well off the intraday lows as a result also led to some dramatic reversals in high-beta single-name stocks. Shares of Netflix, Inc. (NASDAQ:NFLX) saw one of the most dramatic bullish reversals on Wednesday and one that also happened to take place at a crucial near- to medium-term area of support.
Active investors and traders could look to lean long NFLX stock against Wednesday’s intraday lows.
Netflix reported its latest quarterly results on Tuesday after the close of trading. For the fourth quarter, NFLX saw sales of $1.82 million, which was up from $1.48 million in the same quarter one year ago. U.S. growth for Q4 stood at 1.56 million — notably lower from the 1.9 million new users it added one year ago. Due to Netflix’s ongoing international push, those subscribers rose by 4.35 million versus up 2.6 million a year ago.
As a result of the somewhat mixed numbers, Netflix stock initially on Wednesday dropped sharply, off nearly 10% at the day’s lows. Closer to the midway point on Wednesday, however, the stock began to lift off those lows along with the broader market recovery, and after it was all said and done, shares managed to close the day near the unchanged mark.
When I last discussed NFLX stock on Jan. 7, I pointed to a bullish reversal that while still needing confirmation buying looked to have the potential to bring about another round of bids in the stock, through a multiweek lens. While the Jan. 6 rally never saw any follow-through buying, Wednesday’s bullish reversal may have just been the confirmation the bulls needed to play the stock higher for a trade.
NFLX Stock Charts
The bigger-picture chart of NFLX stock remains as concerning as it has been for some time, with the rising wedge pattern ultimately threatening a much more meaningful mean-reversion trade lower. The stock’s late 2015 highs came on a significant lower high in momentum, as represented by the Relative Strength Index at the bottom of the chart. So while the stock could bounce in the near-term and provide traders with a nice opportunity, the larger picture argues for lower prices still at some point in 2016, which could revisit the high $70s to mid-$80s.
On the daily chart we see that Wednesday’s sharp intraday reversal in NFLX stock had briefly pushed it below confluence support made up of its red 200-day simple moving average as well as the black diagonal support line.
While at this juncture, Netflix shares will need follow-through buying to confirm Wednesday’s bullish reversal, active investors and traders now have very well defined support at Wednesday’s intraday lows to try NFLX from the long side for a trade back toward the $120 area as a first price target.
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