The stock market is made up of two different camps: the bulls and the bears. One group says that stocks are going higher, while the other urges you to run for cover.
This back and forth has been going on for decades, so it’s no surprise that two very different viewpoints emerged when Netflix, Inc. (NASDAQ:NFLX) recently took a 12% spill. But the part that’s most interesting is the fact that both opinions came from the same side — the bulls.
Those with the overly optimistic viewpoint were left scratching their heads and wondering how NFLX could fall when it’s supposed to climb higher every day. On the other hand, the second and more realistic group realized that a double-digit pullback is nothing more than a garden-variety, one-week rest for a high-flying tech stock like Netflix.
NFLX closed Thursday at its lowest level in six weeks, yet it still remained up 23% for the year so far. While some will bash the stock for the weakness and claim that it’s breaking down, I have to say that’s still pretty strong year-to-date growth — the S&P 500 Index is up only 9.5%.
I’m neither a groupie nor a hater of the FANG group. I analyze each stock on an individual basis and if I believe it will be higher in the future, I consider it an attractive investment. That’s how I feel about Netflix right now. In fact, I believe it has the potential to become a $200 stock in the next two years. Therefore, I’d be a buyer near support.
As you can see in the chart above, NFLX has a lot of support around $140, so establishing a position anywhere near this level would be acceptable. There is also long-term support at the 200-day moving average at $132 (the red line), which gives buyers a clear level to watch on the downside. On the upside, NFLX stock has potential up to that $200 milestone.
Based on typical valuations, NFLX should be trading a lot lower. But similar to Amazon.com, Inc. (NASDAQ:AMZN), the company cannot be compared to the average market. A few years ago when AMZN was trading at $250 and getting bashed by Wall Street, it was easy to jump on the bandwagon and avoid the stock. That would have been a bad decision, though, and I believe not buying Netflix on weakness to $140 would be no different.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.