An upbeat forecast for Netflix (NASDAQ:NFLX) has put shares happily back in the spotlight for bullish investors. But before you subscribe to this week’s bid in your own trading account, use the NFLX stock price chart for a “best entry and exit nod” in a moving picture known for its upsets. Let me explain.
If you believe in the power of the 200-day simple moving average, NFLX stock was unveiling its latest gift on Friday as shares tested and finished slightly above the slithering longer-term trendline. Alternatively, the financial press’ version of NFLX’s 3.21% jump on Monday was attributed to a bullish analyst note from broker Piper Jaffray.
Analyst Michael Owen, a long-time and well-known Netflix bull reiterated his overweight rating and above market price target of $440. Relative to the closing print of $350.62, Piper’s bullish recommendation implies upside in excess of 25% over the next 12 months for NFLX stock with the price target roughly 4% above consensus forecasts of $423.28.
Behind the latest call to arms, besides likely defending NFLX stock’s worst one-week decline since early May’s broad-based market selloff, Mr. Owens cited upbeat search trend evidence. Using his Google-based “Netflix Search Index”, the model implies the SVOD giant will easily top the company’s subscriber growth data forecast domestically and internationally by a wide margin. Specifically, Owen’s data points to U.S. growth of 11.7% and 45.8% overseas versus Netflix’s own outlook of 8.2% and 36.5%, respectively.
Netflix Stock Weekly Chart
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Although Netflix shares managed to hold the 200-day simple moving average, last Friday looked fairly ominous on the weekly chart after testing the technical patience of bulls over the past couple of months. The most recent offense saw NFLX stock pull the rug out from underneath investors as last week’s price action countered the prior period’s bullish engulfing candle, which had averted a near breakdown in NFLX beneath lateral support.
Now and depending on whom one asks, either the 200SMA, Piper Jaffray or a combination have come to the rescue of Netflix bulls. And early Tuesday is seeing some strong follow-through on top of Monday’s gains. So, will this week’s price action finally lead to a meaningful upside resolution for NFLX stock? I believe so.
It’s still early on the weekly time frame to know how the current five-day period is going to play out. Nevertheless, with NFLX stock reacting well off a very narrow contraction of the Bollinger Band, the lower support line curling up and shares enjoying a favorable oversold stochastics set-up, I’m a fan.
For like-minded investors wanting Netflix to “show them the money” my recommendation for a best entry and exit in a moving picture known for its upsets is to buy momentum in NFLX stock through $364.50 coupled with a trailing stop of 5%. This entry is slightly above last week’s open and what proved to be a trap for bulls. Now though, it’s expected the bears would be at grave risk of failure and a rally will prevail if this purchase is triggered. At the same time, and if our technical assessment is wrong, this blended stop-loss strategy looks like a good way to exit without overstaying today’s welcoming red carpet for bulls.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
