Trade of the Day: Netflix, Inc. Kicks Off the New Year With a Bang

NFLX stock breaks out of a bullish technical formation

By Serge Berger, InvestorPlace Contributor

Shares of Netflix, Inc. (NASDAQ:NFLX) rallied 4.75% on Tuesday, the first trading day of 2018. While the rally was fairly broad based in larger-cap technology land, NFLX stock as a result completed the first leg of a breakout that traders and investors could now look to sink their teeth into.

For perspective and so you know, when I last offered my take on NFLX stock on Dec. 20, 2017 I said that as long as the stock can hold the $182 area on a daily closing basis it should be well-positioned for a next leg higher toward $209 as a next upside target.

With Tuesday’s rally this move higher  now looks to be on the way and a next bigger upside target could come into focus.

NFLX Stock Charts

Click to Enlarge

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

On the multiyear weekly chart, nothing has changed much since my last update, which is to say that the broader up-trend in the stock remains intact. Note, however, that after bumping into the upper end up of the up-trend in mid-October NFLX then mean-reverted down to the lower end of this range in a healthy consolidation phase.

The rally over the past few days now has the stock bouncing off support and is also seeing the relative strength index (RSI) at the bottom of the chart come back to life.

Click to Enlarge

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

Although the so called FANG names rallied strongly in 2017, note that NFLX stock due to the consolidation phase in the last quarter of 2017 essentially has gone nowhere since mid October. To me, this is the healthy type of price action I want to respect, particularly if the bounce off technical support is strong.

Note that the lower end of technical support on the daily chart coincides with a simple up-trend line as well as the 100-day simple moving average.

The Jan. 2 rally pushed NFLX stock out of the bull flag pattern and back to the October highs. If this rally can sustain then a next upside target at the upper end of the trading range around the $220 mark is next.

Market participants should however be aware of Jan. 22, which is when Netflix is scheduled to report its next batch of earnings.

Check out Anthony Mirhaydari’s Daily Market Outlook for Jan. 3.

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