Today’s NFLX Signal
Risk 0.75%.
Long Trade Idea
Enter long trade just before New York close (4pm Eastern Time) today if the price per share is above $1,250.52 (the record high closing price).
Market Index Analysis
Netflix (NFLX) is a member of both the NASDAQ 100 Index and the S&P 500 Index.
Both indices are in bull markets.
Neither Index is even trading within correction territory (down by more than 10% from the high).
Both indices are trading above their respective 200-day simple moving averages.
We can conclude there is clearly a wide bull market suitable to long trades.
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Market Sentiment Analysis
Last week’s decision by the US Federal Reserve to talk up the prospect of interest rates staying higher for longer was a bit negative for stocks, but the overall chilling effect was small. Of more concern is the aftermath of the seemingly successful US strike on Iran’s major nuclear facilities over the week. The Iranian regime has vowed to strike back hard at the USA, although it is unclear how this could be done. In the event of a major terror attack on the US mainland, we can expect the stock market to fall sharply for a while, especially if rumours get around of something even worse than confirmed. Such an event could at least trigger a stop loss, even a wide one.
Netflix Fundamental Analysis
The consensus among analysts is that Netflix has moderately strong to excellent fundamentals, which basically supports a long trade. The company has a highly profitable business model, is well established, and is again increasing its number of subscribers, recently passing 300 million. Its profitability is helped, it must be said, by its generally low quality and trashy content, but the good news for shareholders is, this content is cheap!
On the negative side, many analysts see Netflix as extremely overvalued, with a price to earnings ratio exceeding 21, and an “intrinsic value” less than half the current market share price. However, in a bull market like we have now, this is rarely a barrier to higher prices.
Netflix Technical Analysis
There is a powerful long-term bullish trend, with very strong momentum. The price is within a single day’s ATR 100 value of its all-time high, so this could easily be exceeded today, especially if markets open with bullish relief at the seeming success of the American strike on Iran.
At the time of writing about 4.5 hours before the market opens, the two major US equity indices relevant to NFLX are up quite firmly. In pre-market trading, I see NFLX about $3 higher per share than Friday’s closing price.
These are bullish signs.
We have seen a consolidation / weak retracement over the past 9 days, which sets up a bullish breakout nicely. Once consolidations pass about 10 days, the chance of a strong bullish breakout tends to diminish.
My Call
Overall, I see an opportunity here to enter long on a breakout to a ne record high after a consolidation, which is likely to be a good trade.
After entering the trade just before the New York close if the price is at an all-time high closing price – or even better, just an all-time high price – exit the trade using either 1X or 3X ATR 100. Both strategies should work but will produce differential equity curves.
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