Netflix, Inc. (NASDAQ:NFLX) stock has more than $100 potential upside
After two months of straight-up rallying in the equity markets this year, we’ve recently hit a stumbling block. So we are now seeing some downside pressure but from relatively high altitudes. For example, yesterday the S&P 500 fell 0.6% yet the so-called fear index VIX spiked 6%. Clearly, we have edgy traders because they have one foot out the door after such an extended rally. The media is unanimous in saying that we’ve come too far and too fast.
But among the mini-wreckage, there are gems that shine. Even during red days like Wednesday, we saw strong buying in stocks like Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) to name two.
Today, I am interested in what the NFLX stock chart is telling about the mid-term future of the stock. And therein lies the opportunity. But first I have to share my overall bias in the equity markets: I still believe that the bulls are in control here and that without any new shoes to drop, the S&P is brewing another leg higher once this tizzy ends.
So my comments about Netflix stock today are inside the assumption that we are not on the verge of a severe market-wide correction.
Let me preface this by giving you the end-statement first: Regardless of what is the end game is for NFLX fundamentals, the stock here has a mega breakout brewing worth $100 of potential upside.
Now for the bad news. Fundamentally, NFLX is very expensive as it sells at a price-to-earnings ratio of 135. But I am willing to overlook that fact because this is a hyper-growth stock, so the value is not how I judge it. For now, I accept that they need to spend to grow.
I say that while I gulp because the amount of money they spend on content is insane. But for now, this is the hook that they need to continue executing on their global domination plan. So Wall Street gives NFLX stock a pass on valuation, but not if they start slowing the new signups, especially overseas.
Their CEO does a great job exuding confidence and keeping its fans believing that all plans are still on track. This is even in the face of massive competition knocking on the front door. The list includes mega caps with deep pockets like Disney (NYSE:DIS), Facebook and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Yes, NFLX has the first mover advantage, but that can change fast. I acknowledge that NFLX would have levers to push back on the threat like raising prices or dialing back spend but that also would change the terrain.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 380.68.
The projected lower bound is: 328.77.
The projected closing price is: 354.72.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend. It then signifies that the momentum may be shifting from the bulls to the bears.
If the engulfing bearish pattern occurs during a downtrend (which appears to be the case with NETFLIX INC), it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 42.0984. This is not an overbought or oversold reading. The last signal was a buy 2 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.88. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 32 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -87. This is not a topping or bottoming area. The last signal was a buy 1 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 19 period(s) ago.
Rex Takasugi – TD Profile
NETFLIX INC closed down -7.010 at 352.600. Volume was 49% below average (neutral) and Bollinger Bands were 66% narrower than normal.
Open High Low Close Volume___
360.160 362.860 350.500 352.600 6,151,331
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 358.77 332.81 339.62
Volatility: 23 54 56
Volume: 6,273,335 10,936,375 11,711,128
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
NETFLIX INC is currently 3.8% above its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of NFLX.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on NFLX.O and have had this outlook for the last 8 periods.