Trade of the Day: A Bull Case for Netflix Stock

NFLX stock is coiling up for another move higher

Shares of technology (and related) stocks have shown relative strength versus the broader U.S. stock market over the past week or so. Increasingly large tech names such as Netflix (NASDAQ:NFLX) are coiling to for technical trading breakouts, or have already done so. NFLX stock in particular is coiling in a notably tight range at the moment, and barring any quick bearish reversal, the path of least resistance points higher, for a trade.

While I have learned over my career that it takes more than simply glancing at a chart to come up with high-probability trading and investing opportunities, I have also learned not to “fight the chart,” in particular when a specific technical pattern seems to be found in abundance in any sector or group, or in the stock market as a whole.

NFLX Stock Charts

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

To gain some perspective on the trade idea I am about to lay out, let’s first look at the big-picture, multiyear weekly chart. Here we see that NFLX stock, while still in a longer term up-trend, has been in a much more volatile environment since topping out in June 2018. At least in part, this also reflects a notably more volatile environment for stocks … so you know.

On the chart we see that this stock had a sharp snap-back rally over the past two months or so, one that measures close to 60% … which also brought it back to the upper end of a trading range as marked by the two purple parallels. Given the steepness of this rally and (from a fundamental perspective) increasingly difficult top- and bottom-line comps for the next couple of quarters, I have difficulty seeing how this stock can rally to fresh and sustainable all-time highs from here.

That being said, another 10% or so higher is most definitely not out of the question.

Click to Enlarge

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

On the daily chart, we see that NFLX stock has over the past few weeks slipped into a sideways consolidation phase, just above its red 200-day moving average and below simple resistance at the upper end of the aforementioned trading range. Such price behavior at a key level like this often times acts as a working off of near-term overbought conditions so that the stock can continue higher again, at least for a trade.

Active investors and traders here could look to buy NFLX stock upon a break and hold above the $365 area. A next upside target then opens up near the round $400 area. So you know, its price has a tendency to gravitate to big, round numbers.

Any strong one-day bearish reversal would be a stop loss signal.

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