Video streaming giant Netflix, Inc. (NFLX) reported quarterly results after the close on Jan. 22 and did not disappoint. The stock closed Jan. 22 at $227.58 and opened Jan. 23 at $255.05 for a 12% price gap higher. This upward momentum was consolidated, with the stock trading as low as $236.11 on Feb. 9.
Momentum rang supreme from that low, as the stock rallied 41% to set its all-time intraday high of $333.98 on March 12. At the high, the weekly chart showed that momentum (12 x 3 x 3 weekly slow stochastic) was above 90 on a scale of 0 to 100, so the chart indicated that Netflix stock was in an "inflating parabolic bubble."
At Monday's close of $280.29, Netflix stock is up 46% year to date but is also in correction territory at 16.1% below its March 12 high of $333.98. The shares are up 18.7% since the Feb. 8 low of $236.11. The stock was around my quarterly pivot of $247.78 in pre-market trading this morning. Recent share price weakness has been caused by nervous investors concerned about a potential trade war with China. (See also: Netflix Sell-Off Could Signal Deep Correction.)
The daily chart for Netflix
Netflix has been above a "golden cross" since Oct. 12, 2016, when the stock closed at $99.50. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. The horizontal lines show my annual value level of $163.62 as well as my quarterly, semiannual and monthly pivots of $247.78, $249.24 and $281.54, respectively. This week's risky level is $322.90.
The weekly chart for Netflix
The weekly chart for Netflix will be downgraded to negative if the stock ends this week below its five-week modified moving average of $286.97. The stock is well above its 200-week simple moving average at $121.81, which is also the "reversion to the mean," last tested during the week of Jan. 25, 2013, when the average was $16.28. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 80.49 this week, down from 87.39 on March 29. It won't take too much additional weakness for this reading to fall below the overbought threshold of 80.00. The monthly close of $295.35 was enough to pop the "inflating parabolic bubble."
Given these charts and analysis, I recommend buying Netflix shares on weakness to my semiannual and quarterly value levels of $249.24 and $247.78, respectively, and reducing holdings on strength to this week's risky level of $322.90. My monthly pivot is $281.54. (For more, see: Netflix Driving Up Pay in Hollywood: Report.)