The residents of the Street returned from their holiday festivities with a healthy appetite for stocks. Thursday’s 1.24% Nasdaq rally was almost matched by a 1.14% gain by the Russell 2000 Index. Leadership from both means optimism is in the air, and speculative behavior is returning. A fresh look at tech stocks reveals Netflix (NASDAQ:NFLX) is once again flashing a sweet buy setup.
NFLX stock has been a sight to behold this year. With year-to-date gains that trounce the broad market (107% vs. 11%), it’s hard to overstate the company’s dominance. The May-June ascension breathed new life into the shares bringing increasing momentum in its wake. Remember, not all upswings are created equal. Those that are accompanied by momentum confirmation are the most attractive to buy dips after. Fortunately, Netflix had that in spades.
The RSI soared well into overbought territory. Since then, the price pullback has ushered the indicator back toward 50. All retreats toward this area have been rousing buys this year, and I suspect this episode will prove no different. The 20-day moving average is lending a hand to buyers here by acting as an excellent level to trade off of. Sellers have thus far been unable to push prices below it.
Thursday’s pop created an inside day, otherwise known as a bullish harami, which could suggest a changing of the guard from bears to bulls here. A rise above $400 could trigger a pre-earnings run-up in anticipation of the July 16th release.
Bank on NFLX Stock Bulls Into Earnings
If you’re willing to throw your lot in with buyers, then grab the July $400/$420 bull call spread for $8.50. The risk is limited to the initial $8.50 and will be lost if NFLX sinks post-earnings and settles below $400. The reward is $11.50 and it will be captured if the stock sits above $420 at expiration.
Traders wishing to sidestep the earnings drama could exit beforehand.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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