Netflix, Inc. (NFLX) shares closed the first half of 2019 at $367.32, which became a key input to my proprietary analytics. The only level left over from the first half is its annual value level at $217.12, which is well below the price action seen on the charts. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 21, when the stock closed at $369.21.
Fundamentally, Netflix stock is not cheap, as its P/E ratio is elevated at 135.91 with the company not offering a dividend, according to Macrotrends. The streaming video giant has had a volatile ride after the announcement that it would raise its monthly subscription price to $13 for its U.S. subscriber base of 58 million to cover increasing content costs.
The Netflix bulls forgot that the company would be spending a king's ransom for content this year to stay ahead of new streaming competition from Amazon.com, Inc (AMZN), The Walt Disney Company (DIS), and AT&T Inc. (T). Netflix may burn through $3 billion in 2019 for content.
Netflix reported strong earnings on April 16, and the stock responded by setting its 2019 intraday high of $385.99 on June 3 and again at $337.29 on June 14. In the longer term, Netflix stock is consolidating a bear market decline of 45.3% from its all-time intraday high of $423.20 set on June 21, 2018, to its Dec. 26 low of $231.23.
The stock has been strong in 2019 with a gain of 42.2% year to date, and it is up a bull market 64.6% since its Dec. 26 low. Even so, the stock is also in correction territory at 10.1% below its high set on June 21, 2018.
The daily chart for Netflix
The daily chart for Netflix shows that the stock has been above a "golden cross" since March 13, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. Even so, the stock slipped to a test of its 200-day simple moving average at $336.69 on June 3 and at $337.29 on June 14 as buying opportunities.
The close of $367.32 on June 28 was an input to my proprietary analytics and resulted in the following key levels. A monthly pivot for July is $377.43 and should be a magnet. Its semiannual value level is $364.99, with a quarterly risky level above the chart at $471.27.
The weekly chart for Netflix
The weekly chart for Netflix is positive, with the stock above its five-week modified moving average of $363.38. The stock is also well above its 200-week simple moving average, or "reversion to the mean," at $209.68. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 52.44, up from 42.44 on June 28.
Trading strategy: Buy Netflix shares on weakness to the semiannual value level at $364.99 and to the 200-day simple moving average at $337.87. Reduce holdings on strength to the quarterly risky level at $471.27. This month's pivot at $377.42 should be a magnet.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.