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Trade of the Day: Risk Levels of Netflix, Inc. Into Year-End

NFLX stock offers good reward to risk for a year-end trade

By Serge Berger, InvestorPlace Contributor


Are you thinking of sneaking in a trade in FANG stocks into year-end? Shares of  Netflix, Inc. (NASDAQ:NFLX), despite a two-month-long consolidation phase of late, remain higher by 50% for the year and are dancing on a critical technical support area where good reward-to-risk sets up for a trade.

Will Santa bring about another year-end rally in the last few trading sessions of this year? That is the question many active investors I circle with have been asking themselves, particularly as it relates to some of the go-getter stocks of 2017 like that of Netflix.

As a side note and so you know, Netflix is scheduled to report its next batch of earnings on Jan. 22, which is to say that any pure trading positions (not to be confused with longer-term positions) in my eye should be exited before the earnings date so as not be exposed to the binary outcome of the initial reaction to the earnings announcement.

NFLX Stock Charts

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear chart, note that NFLX stock in October once again bumped into the upper end of its trading range and promptly got rejected … i.e. slipped into a much needed consolidation phase. At the same time NFLX stock remains supported by a well-defined trend line underneath, which is where the stock is currently dancing on.

From a mean-reversion perspective the past two months of price action have simply pulled NFLX stock from the upper end of the trading range back to the lower end of this range, and that so far is constructive — until and  unless of course support were to break.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, note that the price action in NFLX for the most part this year has been series of rallies followed by check-back of support (constructive consolidation), followed by another rally.

Note that after breaking out of the last consolidation period in early October, NFLX stock has since mean-reverted back to this breakout area in the mid-$180s, which also roughly lines up with the blue 100 day simple moving average.

In early December the stock did begin to bounce off this support area along with other FANG stocks, which is a good first start to a possible further bounce into year-end for now.

Active investors and traders now in my eye have well-defined support around $182 against which long-side trades toward $2090 could be set up. Any break and hold below $182 ish is a last resort stop loss from a trading perspective.

Check out Anthony Mirhaydari’s Daily Market Outlook for Dec. 20.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/12/netflix-inc-nflx-stock-risk-levels/.

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