Netflix, Inc. (NFLX) has been extremely volatile in 2018, with a year-to-date gain of 33.4% but still in bear market territory at 39.5% below its all-time intraday high of $423.20 set on June 21. The stock set its 2018 low of $231.23 on Dec. 26 and has rebounded by 10.7% since this secondary low. Talk about volatility: Netflix is the most volatile stock in the FAANG family. The stock has the largest year-to-date gain and is the deepest into bear market territory.
Netflix believes that content is king. The streaming video giant has increased its spending budget for 2019 and will be offering 90 original shows. Spending for fresh content anticipates that subscriber base growth will continue. Offer more content, and subscriptions will grow, as some subscribers will sign up just to watch a single series. The additional content will also reduce the numbers of Netflix cancellations.
The video streaming company's offerings include movies and proprietary TV programming offered over the internet. Netflix also continues to offer its legacy DVD movies via mail. A risk for Netflix is competitive products from Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN). Amazon's Prime Video and Hulu are growing but lag the content currently offered by Netflix. When Apple offers its next new line of iPhones, it is likely to comment on its anticipated streaming video services. Over the weekend, the new Netflix feature "Bird Box" was viewed by 45 million subscribers.
Let's see what the charts have to say.
The daily chart for Netflix
Netflix began 2018 with a positive reaction to earnings released on Jan. 22. This solidified the rally, which peaked at $423.20 on June 21. A negative reaction to earnings released on July 16 began a sideways consolidation that continued until Oct. 24, when the 200-day simple moving average (SMA) failed to hold at $331.38. Weakness between Oct. 26 and Dec. 4 traded around my semiannual pivot of $291.84. In between these dates, a death cross formed on Nov. 19, as the 50-day SMA fell below the 200-day SMA. This indicated that lower prices would follow, and the Dec. 26 low was $231.23.
The weekly chart for Netflix
The weekly chart for Netflix is negative but oversold, with the stock below its five-week modified moving average of $276.16. The downside is to the 200-week SMA, or "reversion to the mean," at $173.96. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 13.63, down from 15.03 on Dec. 21, with both readings below the oversold threshold of 20.00. When the stock was trading at its all-time high of $423.20 on June 21, the stochastic reading was above 90.00, indicating that the stock was in an "inflating parabolic bubble," which proved to be an accurate technical warning.
Given these charts and analysis, investors should buy Netflix stock on weakness to my weekly value level at $248.72 and reduce holdings on strength to my semiannual pivot at $291.84.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.