How To Trade Netflix Post- Earnings, After Raised Price Targets

Richard Suttmeier

  • The stock is not cheap! Netflix has a P/E ratio of 238.85 and does not offer a dividend.
  • Netflix is thus a pure play on technical momentum.

To evaluate the risk / reward for shares of Netflix investors and traders must focus on daily and weekly price charts.

The daily chart shows that the stock has been above a “golden cross” since Oct. 11, 2016 when the stock closed at $100.59. A “golden cross” occurs when the 50-day simple moving average rises above its 200-day simple moving average and signals that higher prices lie ahead. The daily chart clearly shows this dynamic.

The weekly chart for Netflix is positive but overbought with the stock above its five-week modified moving average of $188.25. The stock is well above its 200-week simple moving average of $99.58, which is considered the “reversion to the mean”. The stock has been above this long-term trend since the week of Jan. 25, 2013 when the average was $16.28. The 12x3x3 weekly slow stochastic reading is projected to rise to 87.32 this week up from 82.23 on Oct. 13 moving further above the overbought threshold of 80.00.

Courtesy of MetaStock Xenith

Netflix has thus been one of the most powerful momentum stock for more than four years and the “golden cross” on the daily chart and the positive weekly charts have thus justified long positions.

Given these charts, my trading strategy is to buy weakness to my semiannual value level of $175.57, which was last tested during the week of Sept. 8, and reduce holdings on a price gap above this week's pivot at $203.50.

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