A Real Money subscriber emailed me recently about Netflix (NFLX) and pointed out some developments on the charts and asked what I thought them. Let's take a look.
In this daily bar chart of NFLX, below, we can see that prices finally broke out of a long sideways pattern in September. Prices were stuck between $480 and $570-$580 for months. Agile traders may have been able to trade the smaller "jiggles," but a strong uptrend did not materialize until mid-June or early August, depending how you view things.
Prices are trading above the rising 50-day and the rising 200-day moving average lines. We can also see a bullish golden cross of the the 50-day and 200-day averages in August. The On-Balance-Volume (OBV) line is at a new high and shows a positive trend from early June. The trend-following Moving Average Convergence Divergence (MACD) oscillator is bullish, but shows some narrowing in recent sessions.
In this weekly Japanese candlestick chart of NFLX, below, my eyes are drawn to the most recent candle pattern that looks like a "gravestone doji" to me. There is a very small real body, but the key feature is the long upper shadow telling us that some traders pushed prices higher, but others pushed prices lower telling us that at the end of the day (actually the week), the upside was rejected.
This candle can mark a key high, but it does not mean that prices are headed lower. A top reversal can mean that prices move sideways instead of down. Still, we need to see bearish confirmation of this pattern. If prices resume their uptrend then we don't have bearish confirmation. The weekly OBV line has turned upwards and the MACD oscillator is bullish, so I really want to see that confirmation.
In this daily Point and Figure chart of NFLX, below, we can see that prices reached and exceeded a $571 price target.
In this weekly Point and Figure chart of NFLX, below, we can see a potential longer-term price target in the $704 area.
Bottom line strategy: NFLX has been correcting this month on declining volume, and I consider that bullish. The weekly candle pattern is potentially negative, but the major trend is up and we do not have a classic top pattern. Net-net I want to give the benefit of doubt to the bulls -- stay long NFLX, but raise stops to $550.
