FAANG member Netflix, Inc. (NFLX) closed above $300 for the first time since Aug. 19 on Monday, swept up in rumors about a big hedge fund buyer as well as optimism in the wake of The Walt Disney Company's (DIS) hugely successful launch of the Disney+ streaming service. Netflix stock has been under accumulation and gaining ground since hitting a nine-month low in September, raising hopes that the decline starting in July has finally run its course.

However, Disney's success could translate into lower market share for Netflix, which faces a barrage of new competitors in the coming year. The 2020 streaming market has huge potential, but the flood of new services is likely to trigger burnout by customers who get tired of paying multiple monthly subscriptions. In addition, there isn't enough quality content to go around once new users get past introductory prices and upcoming entries, like Comcast Corporation's (CMCSA) "Battlestar Galactica" or CBS Corporation's (CBS) "Star Trek: Picard."

Netflix still carries a hefty price-to-earnings ratio (P/E) of 97 despite dropping more than 110 points since posting an all-time high in June 2018. The company needs to maintain and build upon rapid domestic and international subscriber growth to support that high valuation, but as unhappy shareholders have discovered in the past two quarters, that's easier said than done. As a result, it's hard to visualize much higher prices until the next earnings confessional in January 2020.

NFLX Long-Term Chart (2004 – 2019)

Long-term chart showing the share price performance of Netflix, Inc. (NFLX)

A strong uptrend that followed the May 2002 initial public offering (IPO) topped out at a split-adjusted $5.68 in January 2004. That marked the highest high for the next five years, giving way to a steep decline that bottomed out at $1.27 in the second quarter of 2005. The subsequent bounce stalled just one point under the prior high in 2006, while a 2008 breakout attempt failed to mount that resistance level.

The economic collapse triggered a modest downdraft, with the October low at $2.56 marking a historic buying opportunity, ahead of steady gains that reached the 2004 high in the first quarter of 2009. The subsequent breakout caught fire one year later, underpinned by the rapid expansion of broadband internet. A sell-off into new support in 2012 marked the first of three corrections this decade, yielding a fresh rally leg that topped out near $130 in 2015.

The uptrend resumed after the 2016 presidential election, posting impressive gains into June 2018's all-time high at $423. Aggressive sellers then took control, generating a painful 45% decline into year end, followed by a bounce that stalled at the .786 Fibonacci sell-off retracement level in April 2019. The sell-off since July found support at the .786 rally retracement in September, yielding an uptick that may carve the next wave of a symmetrical triangle pattern that persists well into 2020.

The monthly stochastics oscillator raises the odds that the September low will hold for now, recently crossing into a buy cycle from the oversold zone. It's the first time since 2012 that the indicator has dipped into this extreme level, highlighting the importance of the recent uptick. However, the developing range or triangle should limit gains to the upper trendline, which is slowly coming into alignment with the .618 sell-off retracement at $350. 

Range-bound action into the foreseeable future should keep long-term investors on the sidelines, waiting for evidence that the stock is still worth its high valuation. On the flip side, traders could profit from this well-organized pattern, taking advantage of an oversold bounce that could add another 15% or so into resistance. Just keep in mind that another test at triangle support is possible, exposing a downdraft into the $260s.

The Bottom Line

Netflix stock should hold the deep summer low into 2020, but the upside may be limited in the coming months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.