Video streaming giant Netflix, Inc. (NFLX) offers internet content subscription services including movies and proprietary TV programming. The company also continues to offer its legacy movies service with DVDs delivered via mail. The stock closed last week at $348.68, up 81.6% year to date, but Netflix is in correction territory at 17.6% below its all-time intraday high of $423.20 set on June 21. The correction was into bear market territory when shares traded as low as $310.93 on Aug. 20. This day provided a near-term buying opportunity, as it was a "key reversal" day. This happens when a cycle low occurs and the stock closes above the prior day's high, which in this case was $324.37 versus the $327.73 close.
A risk for Netflix is competitive products from Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN). Offerings from Amazon's Prime Video and Hulu lag the content currently offered by Netflix. When Apple offers its new line of iPhones this week, there could be chatter about its anticipated streaming video service, which could snap the rebound for shares of Netflix. Let's see what the charts have to say. (See also: Why Netflix Could Rally 30%.)
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. As a warning, the stock is currently between its 50-day and 200-day simple moving averages at $363.25 and $304.57, respectively. The horizontal lines show my annual value level of $163.62, my semiannual value level of $291.64 and my quarterly pivot of $346.54. My monthly risky level is above the chart at $471.45.
The weekly chart for Netflix
The weekly chart for Netflix is neutral, with the stock below its five-week modified moving average of $355.02. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 35.52, rising from 32.15 on Aug. 31. 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 shares on weakness to my semiannual value level of $291.84 and reduce holdings on strength to my monthly risky level of $471.45. If the stock gaps below my quarterly pivot of $346.54, that would be a warning to reduce holdings. (For more, see: SunTrust: Buy Netflix Shares After Pullback.)