NFLX Stock Is on a Bullish Track
I have been bullish on Netflix, Inc. (NASDAQ:NFLX) stock since I published my report on October 11, 2016, outlining my bullish findings that supported this view. Since that fateful day, Netflix stock has appreciated to the tune of 36%, as the price has gone from $104.58 to where it currently stands, at $142.89.
Since that date, I have found numerous indications which are suggesting that higher NFLX stock prices are likely, and all of these findings are based on the style of research I use to analyze potential investments.
For anyone who is not familiar with my work, I use technical analysis to generate my investment views, as well as to create applicable trading strategies. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. So, as a result, the stock chart and I have become great friends over the years.
In early 2017, there were developments that suggested that the bullish trend in Netflix is set to continue. These developments are illustrated on the NFLX price chart below.
Chart courtesy of StockCharts.com
The Netflix stock chart above illustrates healthy constructive price action. Healthy constructive price action consists of impulse waves, which have been highlighted in green on the above chart, and consolidation waves, which have been highlighted in purple.
Impulse waves serve to advance the price, and consolidation waves serve to alleviate overbought conditions and set up the next advancing impulse wave. This alternating wave structure creates the building blocks that make up a sustainable trend. This wave structure is effective on many fronts, It can be used to help determine the next direction of the price, and it can also be used to generate a potential price objective. These two factors are essential in setting up an appropriate trading strategy.
This price objective is based on the theory that impulse waves that are separated by consolidation waves tend to mirror each other in terms of length, and that the consolidation wave acts as a mid-point. In applying this theory to the chart above, it produces a potential price objective of $165.00. This bullish price objective supports the notion that higher prices are still likely.
Earlier this year, the price broke above the consolidation wave, indicating that a new impulse wave is set to develop. The price objective that is suggested by the wave structure is now in play. This target will remain in play as long as the price stays above $130.00. This level represents resistance outlined by the consolidation wave, and falling back inside this wave would suggest that the structure has changed, which would carry bearish implications.
I am currently targeting the $165.00 price objective, and the following Netflix price chart illustrates the technical indicators that are supporting this advance.
Chart courtesy of StockCharts.com
In late September, Netflix (NFLX stock) broke above the 200-day simple moving average, and a bullish trend began to develop. The significance of the 200-day simple moving average is that it serves as the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the price is trading above this moving average, it is bullish, and when the price is below it, the stock is bearish.
Shortly after the price broke above the 200-day moving average and began its ascent, a golden cross was generated. A golden cross is a bullish signal that is produced when the 50-day moving average, highlighted in blue on the chart, crosses above the 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is in development because this indicator creates a bullish tailwind. It is not uncommon for a price to accelerate after this indicator is generated, and this is exactly what occurred.
A few short days after the golden cross was generated, the price gapped higher on the heels of a better-than-expected earnings announcement, and Netflix stock hasn’t looked back since.
The acceleration in price has been accompanied by the 50-day moving average. This moving average is now acting as a level of price support. This moving average defines the bullish trend in Netflix stock and, as long as the price remains above this moving average, I can only assume that higher prices are likely.
Bottom Line on Netflix
The indicators that have been generated using the Netflix stock chart continue to suggest that the path of least resistance for NFLX stock is toward higher prices. My views are contingent on these indicators, and as long as they continue to suggest that higher prices are likely, I will continue to hold a bullish view. If the price chart gives me reason to believe otherwise, I will have no recourse but to change my view.