Emphasizing the Netflix Buy Side

 | Jun 14, 2013 | 1:00 AM EDT
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My bullish case in Netflix (NFLX) is as follows:

First, the price is currently above both the 200- and 50- simple moving averages. For buy-side stocks at which you are looking, you will be ideally above both these key averages.

Second, the most recent low made at $205.75 was at the coincidence of at least five Fibonacci price relationships. These relationships included retracements of prior swing low to highs, along with Fibonacci price extensions and 100% projections of prior swings. The levels came in between $202.28 to $205.33.

Note that the most recent low was made at $205.75 which is less than a dollar away from this zone. This was followed by a healthy upside reversal in Thursday's session. Besides the key price support that we are currently holding above, there is also some time "symmetry" at the recent low. What I mean by symmetry is similarity or equality when comparing swings in the same direction. In this case I'm talking about swings in time. Note on the daily chart below that I've labeled prior swings in time that were similar between seven and nine trading days. The recent low was made nine trading days down from the last minor high.

Besides what I'm showing on the daily chart, I'm also seeing intraday  Fibonacci timing at the last low in NFLX as the key support was tested.

Bottom line, I like NFLX against the first zone discussed above ($202.28 to $205.33) where the 6/13 low was made slightly above. If price continues to hold above here, I see upside potential to the $260 area. If this same key support is taken out, there is one more price cluster zone I would consider an entry against on the buy side. That Fibonacci price cluster comes in at the $190.64 to $195.05 area.

If both of these zones are taken out, however, I will exit the long side and consider this trade idea a bust. I'm all right with being wrong a trade, as long as the risk/reward is good and there is clear definition as far as the parameters are concerned. The maximum risk can be defined $1.00 below the low end of the cluster zone you are placing a bet against.



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