Shares of Netflix, Inc. (NASDAQ:NFLX) are blasting higher once again on the back of the company’s latest earnings report as subscriber growth continues to impress investors. For me, while I see and respect the user growth and thus want to continue owning the stock longer-term, in the near-term the stock is now overbought.
More specifically, in regards to Netflix’s most recent quarterly earnings report, the firm gained 8.30 million net new subscribers and beat top-line expectations. As with any growth company, particularly one that has reached cult status such as Netflix has, investors will always be more focused on the growth aspects and future potential than on current top and bottom line figures.
And the former is exactly where NFLX stock continues to impress, both U.S. domestically as well as internationally.
But and as I often point out in this here column, just because one may like a stock’s growth prospects across the near- to longer-term time frames does not mean one has to pay any price to buy or add to the stock.
To wit, after climbing 55% in 2017 and 18% year-to-date ahead of this latest earnings report, NFLX stock ramped higher by about 9% higher in after-hours trading on Monday. In other words, the slope of the chart continues to steepen.
NFLX Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
To put all of this in pictures, let’s gain some perspective from the multiyear weekly chart. Here we see that as a result of the 2018 rally so far NFLX stock has marginally overshot the very upper end of the up-trend from as far back as the year 2012.
In after-hours trading on Monday, the stock traded as high as nearly $250, which as I marked on the charts would be a further significant overshooting of the upper range of the up-trend. Moreover, from a momentum perspective, the stock would be even deeper in overbought territory for the near-term.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that prior to Monday’s earnings report, NFLX stock was also trading at the very upper end of a 14-month up-trend. With the post-earnings rally in after-hours trading, the stock here too would wildly overshoot the upper end of this trend.
So, what’s a market participant to do at this juncture?
For nearer-term swing traders and active investors who are long NFLX stock at least some partial profit taking is likely a wise decision. For more aggressive traders upon signs of exhaustion i.e. say a failed intraday rally in coming days it may provide an opportunity to buy some puts or put spreads using at the money options with two months left to expiration, or even outright short the stock for a trade toward a fist downside target of about 7%. After a pause or consolidation period, if and when it could then provide nimble investors with a better-odds buying opportunity again in this stock.
Check out Anthony Mirhaydari’s Daily Market Outlook for Jan. 23.
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