Netflix, Inc.: NFLX Stock Is Going After New Highs

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After a weak first two trading days of 2016, shares of Netflix, Inc. (NASDAQ:NFLX) on Wednesday ramped more than 9% on the back of news that the company plans on further expanding its popular online movie streaming service across the globe.

Beat the BellWhile one day does not make a trend, the technical picture after Wednesday’s move has again quickly changed for the better and could now allow active investors and traders to jump on NFLX stock for a little momentum ride higher.

With just three full trading days into the new year, the broader U.S. stock market is exhibiting some wild and bearish swings from global macro force headlines. Correlation among stocks and risk assets in general is high at this very juncture, which is to say that any further acceleration lower in stocks, or a sharp bounce for that matter will likely pull with it most stocks, including momentum favorites such as Netflix.

The so called “FANG” stocks collectively enjoyed a great 2015 as they were being chased higher in an otherwise low-growth environment. As a result, as we enter 2016, many of them (although not necessarily all) are now morbidly overbought through at least a multimonth lens.

NFLX Stock Charts

For a little perspective on this, let’s take note of the below multiyear chart of NFLX stock.

We see that after a strong rally in 2012 and 2013, the stock began to run out of steam in early 2014. This led to a good and healthy consolidation phase, which ultimately in the spring of last year gave way to the next bull leg higher. The slope of the line (i.e., the rate of change) accelerated sharply during this latest leg higher in 2015 and reached the upper line of resistance twice.

Also note that the price action is increasingly resembling a rising wedge pattern, which by definition has bearish implications through a multimonth/quarter lens. From a momentum perspective, we also have some notable divergences showing up with the Relative Strength Index at the bottom of the chart, making a series of lower highs while price through the same time frame is still making higher lows.

Ultimately, momentum tends to win this battle and thus leads to a drop in the stock.

NFLX stock chart
Click to Enlarge

With the above medium- to longer-term perspective on NFLX stock in mind, let’s look at the daily chart, where I see some more constructive price action to play with.

Wednesday’s 9% rally in NFLX stock left behind on the daily chart a classic bullish reversal. Note the long bar from Wednesday’s trading session, which initially saw the stock retest the previous two days’ lows before sharply reversing higher. The result was a strong outside day/engulfing candle.

NFLX daily stock chart
Click to Enlarge

More conservative traders may first want to see Netflix stock overcome its yellow 21-day moving average before attempting a trade back toward the December highs in the low $130s while less risk-averse players could begin to initiate a long position in NFLX stock upon any morning weakness on Thursday.

Any bearish reversal of Wednesday’s price action would quickly call off the bullish setup.

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