Netflix, Inc.: This Chart Shows Why NFLX Stock Could Explode Higher
NFLX Stock: Moving on Up
I think I am the only person on the planet who still hasn’t subscribed to Netflix. Perhaps Netflix, Inc. (NASDAQ:NFLX) stock will continue to rise and finally peak after I throw in the towel and finally become a subscriber. I did own a Blackberry at one point, and we all know how that turned out. Jokes aside, I am focusing on Netflix stock because the charts have once again piqued my interest.
NFLX stock has caught a bullish tailwind and perhaps the catalyst might be the bullish rumors surrounding a possible buyout. I can’t say for sure, but I originally had a neutral outlook on this stock, but how quickly things have changed that my bias has swung to be bullish once again.
I use stock charts as the basis of all my investment analysis, and this time is no different.
The following chart illustrates the long-term trend in NFLX stock.
Chart courtesy of StockCharts.com
The chart above illustrates the predominant trend in Netflix stock. There are two parallel lines that define this trend. The pattern is known as an ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend—and time—permits.
Resistance is currently sitting north of $160.00 per share, and support is sitting just south of $30.00. This range is larger than the current price of NFLX stock. When I originally posted this chart, I explained my concerns with it. Each and every time one of these trend lines was hit, the trend reversed until the other trend line was hit. I could argue that the bottom of the channel is the next target based on this premise, but the charts provided below do not agree with this premise.
The following NFLX chart paints a bullish picture and supports further gains.
Chart courtesy of StockCharts.com
The Netflix short-term trend does not support a test of the lower range, as the chart above is completely bullish and, as as a result, my argument for lower prices has been completely debunked.
Netflix stock has been trading sideways for approximately one year and, in the process, has put in a symmetrical triangle. A symmetrical triangle by definition is consolidation pattern that contains two converging trend lines. One line represents resistance and the other represents support. Traders refer to triangles as a zone of indecision, as the prior move is digested. These patterns are particularly explosive because, as the pattern develops, momentum gathers speed similar to a spiral pattern.
The thrust of the move is generated by bulls and bears fighting for a foothold. It is only a matter of time before one camp prevails and sends shares trending in one direction.
In late August 2016, Netflix stock broke out of this triangle, but the breakout was uneventful. It was this uneventful breakout that had originally fostered some concern. Regardless of my concerns, this pattern has an initial target of $130.00 and, if this pattern is a continuation pattern like many other triangles before it, then the top of the ascending channel north of $160.00 is the next logical price objective for Netflix stock. This represents a potential return greater than 50% from current levels.
My concerns were effectively alleviated after NFLX stock broke above both moving averages, and now a golden cross is set to execute in the coming days. A golden cross indicates that a bull market is on the horizon, and this signal is produced when the faster moving average (50 day-moving average) moves above the slower moving average (200 day-moving average).
The golden cross and death cross are exact opposites of each other. NFLX stock generates a death cross in February 2016, effectively halting any further gains, and the triangle developed after this signal executed. A golden cross is now going to propel NFLX stock higher, and a test of the upper trend line becomes ever more likely.
The Bottom Line on NFLX Stock
I am bullish on NFLX stock, and this is a switch from my earlier neutral bias. The charts are now suggesting that the path of least resistance is higher and, as a result, my bias has changed to match the signals that were generated. My bias will remain bullish until the Netflix stock chart gives me reason to be otherwise.
