While the broader U.S. stock market lifted higher again on Wednesday Nov. 29, large cap technology-related stocks such as Netflix, Inc. (NASDAQ:NFLX) took it on the chin for the day. NFLX stock itself tumbled 5.5%, but given the year-end dynamics that are likely to once again play out this year, the stock in my eye is now just becoming more attractive again for a trade higher. Active investors and traders would be wise to watch this stock in coming days.
In any given year, many mutual fund managers and other institutional investors underperform their benchmarks, particularly if that benchmark is the S&P 500. As such — and particularly in years when the S&P 500 has had good performance, such as is the case again in 2017 — the shiny outperforming stocks of the year tend to hold up well into year-end.
This is at least in part due to the underperforming fund managers having to chase or buy those stocks for portfolio/window dressing activity. Also, many fund managers who owned those stocks during the year are not willing to sell them before year end.
Given these dynamics, it should not be too difficult to imagine that the so-called FAANG stocks, the strong performers of 2017, will continue to hold up into year-end.
NFLX Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Taking a peek at the multi-year weekly chart we see that after a much needed and well deserved consolidation period in 2015 and early 2016 NFLX stock in the second half of 2016 once again slipped into a bull costume. The up-trend since is well-defined as by the black parallels I drew on the chart.
Sure, the stock is in overbought territory from a momentum perspective, but barring any major outside noise and given the aforementioned dynamics it is difficult to see the stock give back a significant portion of the 2017 gains before year-end.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
So you know, NFLX stock was higher by about 60% for 2017 into the October highs but has since consolidated. Yesterday’s (Nov 29) “sell-off” now has the stock testing its blue 100-day simple moving average for the first time since this past July. From a near-term momentum perspective the stock is now nearing oversold readings as well.
However, sticking with my stylistic approach means that before buying NFLX stock again for a trade, I need to see buying come back in and not just blindly buy into a dip. The stock still could drop toward the low $180s before better support is found again, which is all the more reason to wait for a good follow-through buying day to the tune of at least 3% on a daily closing basis. If and when this takes hold, a next upside target between $210 and $220 could open up.
Check out Anthony Mirhaydari’s Daily Market Outlook for Nov. 30.
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