Trade of the Day: Netflix, Inc. Stock Attempts a Much-Anticipated Breakout
Although large-capitalization technology stocks as a group have largely chopped back and forth since late January, they continue holding up and are far from breaking down. Within this space, shares of Netflix, Inc. (NASDAQ:NFLX) are performing relatively well and a breakout to new highs looks to be increasingly likely. Active traders and investors could look to buy NFLX stock on pullbacks or bullish reversals.
As analysts and traders, we tend to spend much time focusing and analyzing any given company’s earnings report. Rightly so, of course, as these reports give us plenty of insight into how the company’s doing as well as the outlooks. Price action for stocks following earnings reports can explain up to 70% of any given stock’s price movement over a one-year period. Tactically, however, many traders forget that following post-earnings rallies or pullbacks, stocks tend to stall for a period of time before a next move begins, and that’s what I currently see taking place on the charts of NFLX stock.
NFLX Stock Charts
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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, note that although NFLX stock is much removed from its longer-dated up-sloping moving averages and remains trading in a steep slope, the bigger-picture momentum remains on its side. The stock’s pause over the past couple of months has allowed it to refresh for a possible next move higher.
Often times more experienced traders shy away from “chasing” stocks up or down — yours truly including — but strongly trending stocks in leading sectors or groups of stocks can keep going for much longer than many market participants anticipate.
From a simple “chart pattern” perspective, we see that NFLX stock is pushing up against horizontal resistance which, all else being equal, should mean the path of least resistance from a trading perspective should be higher for now.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see the choppy sideways consolidation of recent months a little better. Note that within this phase, NFLX stock managed to form a series of higher lows all along. This now has the stock pushing up against the $335-$340 blue band of technical resistance.
Lastly, note that over the past couple of weeks the stock has consolidated in a narrow trading range that now looks to be increasingly likely and ripe to result in a breakout higher.
Active investors and traders now have two choices: 1. Buy NFLX stock upon a successful breakout on a daily closing basis above $340 or 2. Buy the stock upon a pullback followed by a bullish reversal. In either case the next upside target from a trading perspective is the $350 area, followed by possibly $360.
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