Nasdaq-100 component Netflix, Inc. (NFLX) rocketed higher after the mid-week Federal Reserve rate hike, lifting off a multi-week base into a test of its bull market and all-time high. The buying spree continues a long-term winning streak for the video streaming giant, who has shaken off years of shareholder discontent and mixed results and emerged as a new age media powerhouse.
The company is finally booking solid foreign growth after many years of overseas investment while vastly increasing its original programming budget, telling happy subscribers to expect more popular shows like House of Cards, Orange Is The New Black and last year’s surprise hit Stranger Things. It should also benefit in coming years from the Trump administration’s likely repeal of Net neutrality regulations, although that remains a wild card due to intense opposition.
NFLX Long-Term Chart (2002-2017)
The company came public as a DVD mail order rental provider at $1.16 (adjusted for two stock splits) in May 2002 and entered an immediate downtrend that bottomed out at 35-cents at the end of the year. That marked the all-time low, ahead of an upturn that that topped out in January 2004 at $5.68, giving way to a pullback that found support at the IPO print in the first half of 2005.
It underperformed through the rest of the mid-decade bull market, stuck at or below the 2004 peak. That humble status kept selling pressure to a minimum during the 2008 economic collapse when the stock lost just three points, dropping to a 52-week low at $2.56 that printed a higher low in the long-term pattern. It then turned sharply higher, reaching 2004 resistance in early 2009, ahead of a breakout and powerful trend advance that continued into the 2011 high at $43.54.
A steep correction into 2012 found willing buyers just below $8.00, completing a double bottom and recovery wave that reached new highs in the second half of 2013. The rally then fizzled out, easing into a broad rectangular pattern that shook out shareholders for more than 18 months, ahead of a breakout that topped out above $125 just four months later. That peak heralded a second period of under-performance, with price grinding sideways to lower into the fourth quarter of 2016 when a powerful buying impulse lifted the stock to an all-time high.
NFLX Short-Term Chart (2015–2017)
Weak European metrics drove equally bearish price action in 2015 and 2016, with quarterly releases triggering big gaps on both sides of the market. The stock held firm through five tests in the low to mid-80s during this period, establishing a solid platform ahead of buying interest that intensified following a surprisingly bullish third quarter 2016 earnings report, The stock has been on fire since that time, peaking above $143 in January and testing that lofty level this week.
On Balance Volume (OBV) has failed to keep up with bullish price action, topping out in the middle of 2015 and entering a distribution phase that continued into February 2016. The indicator then turned higher but, so far at least, has failed to complete a round trip to the prior high. This deficit signals a bearish divergence that raises odds the October 2016 gap between $110 and $116 will eventually get filled.
The Bottom Line
Netflix broke out to an all-time high in January 2017 and has consolidated its impressive gains since that time. The short-term pattern has carved a shallow rising channel that should inhibit momentum until price clears resistance at the rising highs trendline near $147. Round number $150 should then offer final resistance, with that breakout generating much stronger buying interest. Conversely, if this breakout attempt fails, look for sellers to take control and dump price into a gap fill at $100.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>